Investopedia explains '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 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 5-year, 10-year or 30-year 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.
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