Accrued Interest in Australia: 2025 Guide for Investors & Borrowers

Interest is the silent engine driving the world of finance, ticking away in the background whether you’re saving, investing, or paying off a loan. But what exactly is accrued interest, and why does it matter so much for Australians in 2025? As the Reserve Bank of Australia (RBA) and the Australian Taxation Office (ATO) tweak rules to respond to a changing economic climate, understanding accrued interest is more crucial than ever for savvy investors and everyday borrowers alike.

What is Accrued Interest and Where Does It Show Up?

Accrued interest is the amount of interest that has accumulated on a financial product—such as a loan, bond, or savings account—but hasn’t yet been paid or received. In essence, it’s the interest earned (or owed) since the last payment date, but not yet settled. It’s a concept that cuts across many financial scenarios:

• Home Loans and Mortgages: When you make monthly repayments, a portion goes towards interest that has accrued since your last payment.

• Bonds and Fixed-Income Securities: If you buy or sell a bond between coupon payments, accrued interest ensures the seller is compensated for interest earned up to the sale date.

• Savings and Term Deposits: Banks often calculate and report interest as it accrues, even if it is only paid at maturity.

In 2025, with more Australians investing in fixed-income products and the popularity of offset accounts rising, accrued interest is appearing on more balance sheets and tax statements than ever before.

Regulatory Changes and Tax Implications in 2025

This year, the ATO has sharpened its focus on accurate reporting of accrued interest. For individual taxpayers and self-managed super funds (SMSFs), the timing of interest recognition can affect both taxable income and deductions:

• ATO Reporting: As of July 2025, the ATO requires that interest income be reported in the year it is earned, not just when it is received. This means accrued interest must be included in your annual tax return, even if you haven’t physically received the funds yet.

• Investment Property Loans: For landlords, deductible interest now explicitly includes accrued (unpaid) interest, provided it relates to the income-earning activity.

• Bonds and Debentures: If you sell a bond before its interest payment date, you must declare the accrued interest portion separately from capital gains. The ATO’s 2025 guide details how to split these amounts on your return.

With the RBA’s ongoing monetary tightening cycle and a higher cash rate environment, accrued interest amounts are higher than they have been in years—making accuracy even more important for compliance and financial planning.

Real-World Scenarios: How Accrued Interest Affects Your Bottom Line

Let’s look at how accrued interest plays out in practice for Australians in 2025:

• Selling a Government Bond: Suppose you sell a Commonwealth Government Security (CGS) halfway between interest payments. The buyer pays you the bond price plus accrued interest—ensuring you’re not out of pocket for the time you held the asset. On your tax return, you’ll need to declare the accrued interest received as income.

• Paying Off a Mortgage Early: If you settle your home loan before the next scheduled repayment, the lender will calculate the exact amount of interest accrued up to the day of settlement. This can affect your final payout figure.

• Term Deposits and Tax: Even if a term deposit matures in the next financial year, interest accrued up to 30 June must be reported in this year’s tax return under the ATO’s current rules.

Failing to account for accrued interest can result in underreported income or missed deductions, potentially triggering ATO queries or penalties.

Tips for Managing Accrued Interest in 2025

• Track Accruals Regularly: Use your bank or investment platform’s statements to monitor how much interest has accrued, especially around tax time.

• Keep Detailed Records: For investors, maintain records of interest accruals and payments for each security, particularly if you buy or sell between payment dates.

• Understand Lender Calculations: When refinancing or settling loans, ask your lender for a breakdown of accrued interest to avoid surprises.

In 2025, digital tools and apps can help automate this tracking, but a basic understanding of the principles remains essential for financial confidence.

Conclusion: Don’t Let Accrued Interest Catch You Out

Accrued interest might sound like a technicality, but it’s a detail with real financial consequences—impacting how much you pay, receive, or owe on everything from investments to mortgages. With regulatory changes tightening the rules in 2025, taking the time to understand and manage accrued interest is a smart move for anyone looking to maximise returns and stay on the right side of the ATO.