Interest Rate Index

AAA

DEFINITION of 'Interest Rate Index'

An index that is based off the interest rate of a financial instrument or basket of financial instruments. An interest rate index serves as a benchmark used to calculate the interest rate charged on financial products, such as mortgages.

INVESTOPEDIA EXPLAINS 'Interest Rate Index'

Investors, borrowers and lenders use the index to determine the interest rates of the financial products they buy and sell.

The interest rate index can be based on changes to a single item, such as the yield on U.S. Treasury securities, or on a more complex series of rates. For example, an index may be based on the monthly weighted average cost of funds for banks within a state.

Many widely used financial products follow an interest rate index. An adjustable rate mortgage (ARM), for example, ties its interest rate to an underlying index. Well-known indexes include the London Interbank Offered Rate (LIBOR) and the Treasury Constant Maturities index.

RELATED TERMS
  1. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  2. LIBOR Scandal

    A scandal in which financial institutions were accused of fixing ...
  3. Fixed Interest Rate

    An interest rate on a liability, such as a loan or mortgage, ...
  4. Variable Interest Rate

    An interest rate on a loan or security that fluctuates over time, ...
  5. Recurring Billing

    When a merchant automatically charges a cardholder for specified ...
  6. UDAAP

    Misleading or harmful behaviors by those who offer financial ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Investing Basics

    How Banks Set Interest Rates On Your Loans

    On the face of it, figuring out how a bank makes money is a pretty straightforward affair. A bank earns a spread on the money it lends out from the money it takes in as a deposit. The net interest ...
  2. Economics

    What Is ICE LIBOR And What Is It Used For?

    In the case of ICE LIBOR, an innocent-sounding set of letters has a profound bearing on every loan you make.
  3. Investing Basics

    The Insiders Who Fix Rates for Gold, Currencies And Libor

    The system by which benchmark rates are fixed for interest rates, currencies and gold is archaic - and, many would argue, deeply flawed.
  4. Investing Basics

    The Interest Rates: APR, APY And EAR

    When most people shop for financial products, all they focus on is the listed interest rate. Human eyes instinctively dismiss the fine print, which usually includes the terms APR (annual percentage ...
  5. Personal Finance

    How Interest Rates Affect Property Values

    When interest rates fall, real estate prices tend to increase. Why? Find out here.
  6. Economics

    Understanding Interest Rates: Nominal, Real And Effective

    Interest rates can be broken down into several subcategories that incorporate various factors such as inflation. Smart investors know to look beyond the nominal or coupon rate of a bond or loan ...
  7. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  8. Economics

    How Interest Rates Affect The Housing Market

    Understand how rate changes can affect home prices, and learn how you can keep up.
  9. Economics

    Janet Yellen Vs. Alan Greenspan: Who Is The Better Fed Head?

    We examine how these two histories Fed chairpeople differ and the impact of their views and actions on the world economy.
  10. Personal Finance

    Overdrafting

    An overdraft occurs when money is withdrawn from a bank account in an amount that exceeds the funds available in the account. Banks often permit this as a form of short-term loan to the account ...

You May Also Like

Hot Definitions
  1. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  2. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  3. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  4. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  5. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  6. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
Trading Center