How we calculate the floating interest rate
The interest rate of an FRN is the sum of two components: an index rate and a spread.
See Also
fixed vs floating home loan interest rate which is betterRBI' Retail Direct Scheme is a hit among NRIsHow to invest in US treasury bonds from India - Vested FinanceRBI hikes interest rate on Floating Rate Bond 2028 by 53 bps to 7.88%; 0.18% higher than NSC- Index rate. This rate is tied to the highest accepted discount rate of the most recent 13-week Treasury bill. We auction the 13-week Treasury bill every week, so the index rate of an FRN is reset every week.
- Spread. The spread is a rate we apply to the index rate. The spread stays the same for the life of an FRN. The spread is determined at the auction when the FRN is first offered. The spread is the highest accepted discount margin in that auction.
The index rate plus the spread equals the interest rate.
See Also
Floating Interest RateWe apply the interest rate to an FRN's par value every day. Thus, the FRN accumulates interest earned every day.
You can see the index rates and spread for current FRNs. Also, see "How to use the FRN daily indexes database".
