Accrued Interest Drag
The Formal Definition
The accumulated interest earned on a bond since its most recent coupon payment date, which the secondary market buyer must pay upfront in cash to the seller as part of the 'dirty price' before receiving the next scheduled coupon distribution.
Dirty Price = Clean Quoted Price + Accrued Interest | Accrued Interest = Coupon × (Days Elapsed Since Last Coupon / Days in Coupon Period)
Cole Barrett's Reality Check
The Unvarnished Bottom Line"Bond quotes in broker terminals show clean prices, meaning they hide the accrued interest you owe. If you buy a bond trading at 98 that pays an 8% coupon right before its distribution date, you don't pay $980—you pay $1,018. That upfront cash drag surprises retail buyers who assume they bought at a discount."
Interactive Simulator: Test the Math
Real-World Example: Scenario Breakdown
Examining the real numbers for: Purchasing $50,000 par value of a corporate bond (6.0% semi-annual coupon) 170 days into a 180-day coupon cycle
| Execution Metric | Bond Investor (Clean Price Assumption) | Treasury Bill Buyer (Zero Coupon) |
|---|---|---|
| Fee / Rate | $1.00 fee | $0.00 |
| Spread / Buffer | Quoted Clean Price: 99.00 ($49,500 expected cash outlay) | Bought pure discount bill trading at 95.00 par |
| Execution / Status | Broker debited Dirty Price including 170 days of accrued interest | Zero intermediate coupons; zero accrued interest liability |
| Total Cost / Result | Required $1,416.67 more cash than initial clean quote indicated | Zero cash-flow distortion between quoted price and settled price |
How Brokers Weaponize This Term
Brokers display clean bond prices on summary search tables and only reveal the accrued interest adjustment on the final pre-order review screen, obscuring immediate cash capital requirements.
Broker Evaluation Matrix
Cole Approves
Interactive Brokers: Fixed-income order tickets break down Clean Price, Accrued Interest, and final Settlement Dirty Price side-by-side prior to order entry.
Read Audit →Cole Flags / Avoids
Retail Wealth Desks: Hides accrued interest in secondary transaction statements, leading retail bond buyers to miscalculate immediate trade outlay.
View Trap Details →Frequently Asked Questions
Do you get accrued interest back when you buy a bond?
Yes. When the next official coupon date arrives, the issuer pays you the full periodic coupon, reimbursing the accrued interest you paid upfront plus the interest earned while you held it.
What is the difference between clean price and dirty price?
The clean price is the pure market price of the bond excluding interest; the dirty price is the actual settlement cost combining the clean price and accrued interest.