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. Asset Valuation Review (AVR)

    A process that establishes an estimate of the value of a failed ...
  6. International Finance Corporation

    The International Finance Corporation is an organization dedicated ...
Related Articles
  1. How Banks Set Interest Rates On Your ...
    Investing Basics

    How Banks Set Interest Rates On Your ...

  2. What Is ICE LIBOR And What Is It Used ...
    Economics

    What Is ICE LIBOR And What Is It Used ...

  3. The Insiders Who Fix Rates for Gold, ...
    Investing Basics

    The Insiders Who Fix Rates for Gold, ...

  4. The Interest Rates: APR, APY And EAR
    Investing Basics

    The Interest Rates: APR, APY And EAR

Hot Definitions
  1. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  2. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  3. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  4. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
Trading Center