Cost of Savings Index (COSI)

What Is the Cost of Savings Index (COSI)?

The Cost of Savings Index (COSI) is a popular index used for calculating the interest rate of certain adjustable-rate mortgages (ARMs). Officially known as the Wells Fargo Cost of Savings Index, it is based on the interest rates that Wells Fargo Bank pays to individuals on certificates of deposit (CDs).

Like other ARMs, COSI-linked loans transfer part of the risk from the lender to the borrower. While the introductory rates are more favorable than the terms for fixed-rate loans, changing interest rates can mean that some customers may end up paying more money than they would have paid otherwise. In some cases, they may even end up going deeper into debt.

Key Takeaways

  • The Cost of Savings Index (COSI) is a popular index used to calculate the interest rates on some adjustable-rate mortgages (ARMs).
  • Since 2009, the COSI has been compiled every month by Wells Fargo, based on the interest rates paid on the bank’s certificates of deposit (CDs).
  • The COSI is considered one of the most stable ARM indexes in the industry, an advantage when interest rates are climbing, but a drawback when they are falling.
  • Many COSI-indexed ARMs have minimum payment change caps and lifetime interest rate caps—but they may not offer periodic interest rate caps.

Understanding the COSI

The COSI is considered to be among the most stable ARM indexes in the industry. Historically, it is less volatile than other popular benchmarks, such as the one-month London Interbank Offered Rate (LIBOR) index. As CD interest rates move more slowly than market interest rates in general, the COSI also tends to lag behind other mortgage indexes when it comes to adjusting to changes in interest rates. 

The COSI is calculated every month and used to determine the interest rate on ARMs. The interest rate that mortgage-holders have to pay is the sum of the index value plus an additional amount called the ARM margin.

History of COSI

The COSI was originally published by World Savings Bank, a subsidiary of Golden West Financial Corp. For that reason, it was commonly referred to as the GDW COSI or World Savings COSI. In 2006, Wachovia Corp. acquired Golden West, and the index became the Wachovia COSI. In 2009, Wachovia became part of Wells Fargo, and in November of that year, the index became the Wells Fargo Cost of Savings Index or Wells COSI.

Pros and Cons of COSI-Indexed Mortgages

Loans with a COSI-linked interest rate may offer enticing flexibility and payment options compared to other mortgages. ARMs can be significantly cheaper than fixed-rate mortgages, at least during the first few years, when the introductory rates are low. Many COSI-indexed ARMs have minimum payment change caps—which limit the amount that the monthly payment can increase—as well as lifetime interest rate caps.

Since the COSI is steadier than other indexes, ARMs tied to this index benefit mortgage-holders when rates are rising. They’re less advantageous when rates are falling.

On the downside, COSI-indexed mortgages tend not to offer periodic interest rate caps, which limit how much the interest rate can rise at one time. This creates the possibility for negative amortization: If the interest rates rise to the point that the monthly mortgage payment does not cover the interest due, any unpaid interest will get added to the loan balance, so the overall amount due on the mortgage increases.

COSI Pros and Cons

Pros
  • Like other ARMs, COSI-linked mortgages open with attractive lower rates.

  • COSI is steadier than other indexes, meaning rates will rise more slowly than other ARMs.

  • Many COSI-linked loans have payment change caps, which limit the amount that your loan can go up every month.

Cons
  • In the long run, interest rate adjustments can sometimes exceed fixed-rate mortgages.


  • Steady COSI rates are a disadvantage when interest rates are falling.

  • If a mortgage does not offer interest caps, it is possible for interest rates to rise so high that they exceed the monthly payment—resulting in negative amortization.

Wells COSI Rates

The Wells COSI is based on the interest rate that Wells Fargo pays on CDs, also known as personal time deposits. The index is calculated using the weighted average of all of the interest rates paid on CDs as of the last business day of each month. The company announces each month’s COSI on the last business day prior to the 15th day of the following calendar month.

0.18%

The current value of the Wells Fargo Cost of Savings Index (COSI), as of September 2021.

The index value is expressed as a percentage. In November 2009, when Wells Fargo assumed control of the index, the COSI stood at 2.4%. The rate has trended downward ever since, although it rose as high as 1.75% in mid-2019 before continuing to fall. As of October 2021, the Wells COSI was 0.18%.

Cost of Savings Index FAQS

What Is an Adjustable-Rate Mortgage (ARM) Index Rate?

For an adjustable-rate mortgage (ARM), the index is a benchmark interest rate that reflects general market conditions. After the initial interest rate period on your ARM expires, lenders use the index rate, plus some additional percentage points (known as the margin) to calculate your new interest rate. They will continue using the index and margin to periodically adjust your loan’s rate thereafter.

What Are Some Other ARM Index Rates?

There are several other indexes used to determine the rates of ARMs. Besides the Cost of Savings Index (COSI), many mortgages use the London Interbank Offered Rate (LIBOR), the Monthly Treasury Average (MTA) Index, and the Federal Reserve (Fed) prime rate.

How Are Interest Rates Calculated for ARMs?

In an ARM, the fully indexed interest rate refers to the variable interest rate after the introductory rate expires. It is calculated by adding an index rate, such as COSI, to a fixed margin rate, which is tied to the borrower’s credit score. Most loan terms will also include additional caps to limit the possible increases in the loan’s interest rate.

The Bottom Line

One popular index used to calculate the interest rates on some adjustable-rate mortgages (ARMs) is known as the the Cost of Savings Index (COSI). Since 2009, the COSI has been compiled each month by Wells Fargo, based on the interest rates paid on the bank’s certificates of deposit (CDs). It is considered one of the most stable ARM indexes in the industry—an advantage when interest rates are climbing, but a drawback when they are falling. Many COSI-indexed ARMs have minimum payment change caps and lifetime interest rate caps—but they may not offer periodic interest rate caps.

Article Sources

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