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. ... 
Indexed Rate
An interest rate charged on loans to borrowers that is calculated ... 
Fixed Interest Rate
An interest rate on a liability, such as a loan or mortgage, ... 
Fully Indexed Interest Rate
The interest rate on an adjustablerate loan that is calculated ...

Economics
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. 
Investing News
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 ... 
Credit & Loans
All Your Questions About Loan Interest Rates
If you think interest rates donâ€™t really matter  think again. Interest rates have a huge impact on your finances. 
Home & Auto
AdjustableRate Mortgage Indexes: Know Your Benchmark
Understanding these benchmarks can help you select the most competitive adjustablerate loan. 
Economics
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. 
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 ... 
Credit & Loans
How Interest Rate Cuts Affect Consumers
Traders rejoice when the Fed drops the rate, but is it good news for all? Find out here. 
Economics
Forces Behind Interest Rates
Get a deeper understanding of the importance of interest rates and what makes them change. 
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 ... 
Investing Basics
Managing Interest Rate Risk
Interest rate risk stems from the possibility that an interestbearing assetâ€™s value will change due to changing interest rates.

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 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 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 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 >> 
What is the difference between real and nominal interest rates?
Learn what nominal interest rates and real interest rates are, how real interest rate takes into account the inflation rate, ... Read Answer >>