What is a 'Variable Interest Rate'
A variable interest rate is an interest rate on a loan or security that fluctuates over time, because it is based on an underlying benchmark interest rate or index that changes periodically. The obvious advantage of a variable interest rate is that if the underlying interest rate or index declines, the borrower's interest payments also fall. Conversely, if the underlying index rises, interest payments increase.
BREAKING DOWN 'Variable Interest Rate'
The underlying benchmark interest rate or index for a variable interest rate depends on the type of loan or security. Variable interest rates for mortgages, automobiles and credit cards may be based on a benchmark rate such as the prime rate in a country. Banks and financial institutions charge consumers a spread over this benchmark rate, with the spread depending on a number of factors such as the type of asset and the consumer's credit rating.
For variable interest rate bonds, the benchmark rate may be the London Interbank Offered Rate (LIBOR). Some variable rate bonds also use the fiveyear, 10year or 30year U.S. Treasury bond yield as the benchmark interest rate, offering a coupon rate that is set at a certain spread above the yield on U.S. Treasuries.

Interest Rate Index
An index that is based on the interest rate of a financial instrument ... 
Reference Rate
An interest rate benchmark upon which a floatingrate security ... 
Variable Rate Mortgage
A type of home loan in which the interest rate is not fixed. ... 
Fixed Interest Rate
An interest rate on a liability, such as a loan or mortgage, ... 
Indexed Rate
An interest rate charged on loans to borrowers that is calculated ... 
Fully Indexed Interest Rate
The interest rate on an adjustablerate loan that is calculated ...

ETFs & Mutual Funds
How Interest Rates Affect Mutual Funds
Find out how changing interest rates impact mutual funds, including bond and money market funds, and how higher rates can discourage investors. 
Markets
10 Countries With Lower Interest Rates Than the US
Learn about the 10 countries with lower interest rates than the United States and how interest rates indicate a country's economic outlook. 
Markets
Implications of the Federal Reserve's Impending Rate Hike
The Federal Reserve begins its twoday meeting on Wednesday, September 16, and everyone is watching to see if the central bank will raise the United States target interest rate for the first ... 
Markets
How Interest Rates Affect The U.S. Markets
Interest rates can have both positive and negative effects on U.S. stocks, bonds and inflation. 
Personal Finance
AdjustableRate Mortgage Indexes: Know Your Benchmark
Understanding these benchmarks can help you select the most competitive adjustablerate loan. 
Markets
Forces Behind Interest Rates
Interest is a cost for one party, and income for another. Regardless of the perspective, interest rates are always changing. 
Markets
How Banks Set Interest Rates on Your Loans
Many factors go into how banks set interest rates for loans. Use this information to negotiate the best possible rate when you're borrowing. 
Markets
The Impact of the Fed Interest Rate Hike
The Federal Reserve recently raised benchmark interest rates. With much attention on the Fed's policy, here's what happens when the Fed hikes rates. 
Markets
How Interest Rate Cuts Affect Consumers
Traders rejoice when the Fed drops the rate, but is it good news for all? Find out here. 
Markets
Forces Behind Interest Rates
Get a deeper understanding of the importance of interest rates and what makes them change.

Should I get a variable rate student loan?
I'm cosigning a loan for my daughter for college. With a variable rate, what is the max interest rate they can charge? Is ... Read Answer >> 
Which is better, a fixed or variable rate loan?
A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ... Read Answer >> 
What is the difference between a fixed annual percentage rate (APR) and a variable ...
Fixed ARP and variable APR loans operate differently but serve the same purpose: to collect interest from a borrower so the ... Read Answer >> 
What are the advantages of using an effective interest rate figure?
Understand what is meant by the effective interest rate, and learn why the effective rate calculation is preferred over the ... Read Answer >> 
What variables are most important when making a prediction through sensitivity analysis?
Explore sensitivity analysis and how this method considers different variables to determine a course of action based on statistical ... Read Answer >> 
What is affected by the interest rate risk?
Find out more about interest rate risk, how bond prices are affected by interest rate fluctuations and how interest rate ... Read Answer >>