Accrued Interest

What Does Accrued Interest Mean?

Accrued interest is an accounting term referring to the interest on a loan that has accumulated over time but has not yet been paid or received. The lender records it as revenue, while the borrower treats it as a liability.

Insuranceopedia Explains Accrued Interest

Accrued interest is calculated based on the loan or investment amount, the annual interest rate, and the payment schedule within an accounting year. The longer the time taken to pay the principal, the greater the accrued interest.

In the context of insurance, accrued interest can arise from investments made by the insurer on behalf of the insured. For example, certain annuities include a feature where a portion of the payment is allocated to investments. Over time, these investments accumulate accrued interest.