October 23, 2026 · Published by Market Money Daily
Buying a bond just before its next coupon payment does not usually give you a full period of interest for a few days of ownership. For an ordinary interest-bearing bond bought between payment dates, the settlement amount includes interest that built up while the seller held it. You compensate the seller now and receive the scheduled coupon later.
Follow the coupon through two owners
Imagine a hypothetical fixed-rate bond with $1,000 face value and a 4% annual coupon paid twice a year. Each regular coupon is $20: $1,000 × 0.04 ÷ 2. For this illustration only, assume a 180-day coupon period and settlement exactly halfway through it. Ignore fees, taxes, default and unusual coupon-entitlement rules.
The seller has held the bond for the first 90 days. The accrued-interest amount is $20 × 90 ÷ 180 = $10. If the quoted bond price converts to $980, the buyer pays $990 before any separate fee: $980 for the bond plus $10 of accrued interest.
At the next scheduled coupon date, assume the buyer is entitled to and receives the full $20 payment. Ten dollars of that coupon pays back what you paid the seller, and the other $10 is your half of this coupon period.
This allocation is the mechanism described in Fidelity’s fixed-income glossary. Schwab’s FAQ also explains that the buyer pays accrued interest in addition to the bond price, calculated up to but not including settlement. Ask the broker to confirm the actual coupon entitlement if your settlement falls near a payment date.
Move the purchase date; the coupon does not become a gift
Keep every made-up assumption the same except settlement timing. If 162 of the 180 days have elapsed, accrued interest would be $18. The buyer pays $998 before fees and later receives the same $20 coupon, leaving only $2 attributable to the remaining 18 days. Most of the larger cash deposit you’re about to receive just repays interest you already bought.
These examples isolate interest allocation. They do not calculate yield to maturity or total investment return. The $980 price might change, the bond might be sold before maturity, and the issuer might default or exercise a permitted call. Comparing the next coupon with the cash leaving your account would miss all of that.
Read the quote and the cash debit as different numbers
A price of 98 quoted as a percentage of par means $980 for $1,000 face value, not a $98 purchase. Check the platform’s units instead of assuming every screen shows prices the same way. Add the disclosed accrued interest and any separately stated fee to reconcile the settlement total. A markup may already be built into the execution price, so don’t add it again without checking the confirmation.
The exact interest figure depends on the security’s day-count convention, meaning the rule used to count the elapsed portion of a coupon period. FINRA’s accrued-interest calculator separates bond types. Our 90/180 and 162/180 examples are deliberately simplified; they are not a universal government-bond formula. For a mismatch, compare the security identifier, face amount, settlement date, last coupon date, next coupon date and convention with the broker’s calculation.
Accrued interest is not limited to a purchase from another investor. TreasuryDirect’s reopening explanation says a reopened security can require it, with that amount included in the first interest payment. A reopening adds an issue of an existing security; it does not necessarily begin a fresh coupon period for the new purchaser.
Keep the purchase record until the tax reporting is reconciled
The cash coupon and taxable interest can differ. The available IRS Publication 550 for 2025, checked October 23, 2026, describes purchased accrued interest separately from the buyer’s own interest income and provides reporting instructions. Keep the confirmation showing accrued interest paid, then compare it with the tax-year statement and applicable return instructions. Tax-deferred accounts and special debt instruments are treated differently, so don’t apply this ordinary taxable-bond example to every account.
If you are comparing a fund’s monthly payout instead, use the separate SEC yield versus distribution yield explanation. A fund distribution is a different cash-flow question from compensating the prior owner of an individual bond.
Sources checked October 23, 2026
- FINRA — Accrued-interest calculation depends on selected bond type.
- Schwab — Buyer pays seller accrued interest up to but excluding settlement; coupon differs from yield.
- Fidelity — Buyer later receives coupon including seller-earned portion; trading-flat exception.
- TreasuryDirect — Reopening can include accrued interest returned with first coupon.
- IRS — Purchased accrued interest differs from buyer taxable interest; reporting instructions.
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