Accrual Bond

An accrual bond does not pay periodic interest like traditional bonds. Instead, the interest on an accrual bond is accumulated or accrued over time and is paid in full along with the principal amount upon the bond's maturity. In other words, rather than receiving regular interest payments throughout the bond's term, the bondholder earns and accumulates interest that is added to the principal amount. This interest accrues at a predetermined rate, typically specified in the bond's terms and conditions.