Accrued Interest

What Does Accrued Interest Mean?

Accrued interest is an accounting term that refers to interest on a loan that has accumulated over time but has not yet been collected. The lender notes it as revenue, while the borrower regards it as a liability.

Insuranceopedia Explains Accrued Interest

Accrued interest is calculated according to the amount of the loan or investment, the annual interest rate, and the schedule of payments within an accounting year. The longer the time to pay the principal, the higher the accrued interest.

In terms of insurance, accrued interest comes in the form of investments made by the insurer on behalf of the insured. Some annuities, for instance, have a feature where a portion of the payment goes to investments. Over time, these investments will gather accrued interests.