What is the Definition of Actual 365?

Actual 365


Definition: An interest accrual method in which the annual interest will be divided by a 365 day year, and the interest for each interest period will be the interest for the actual number of days in that period. The number of days in the year for periodic calculation is usually one of three choices: 1) actual days in the year (365 or 366 for leap years), 2) always 365 days, or 3) always 360 days (based on 12 x 30-day months). Each interest basis reflects a choice for computing the number of days in the interest period and the number of days in the year in which interest is paid. Municipal and corporate bonds use the 30/360 basis, and government bonds use Actual/Actual. T-bill discounts are calculated on an actual/360 basis. Many variable rate municipal bonds are based on Actual/Actual or Actual/365.

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