Overnight rate

The rate at which money is lent, to be returned the next day, by one bank to another is called an overnight rate.

Banks frequently find that they have surplus or insufficient funds at the end of each day. They settle with other banks by borrowing, and profit on any excess by lending till the next day.

This lending is unsecured and repaid the next morning.

These rates are clearly important to the banks themselves, and they are also used as reference rates to fix floating interest rates on certain types of debt. The most important interbank rate is the LIBOR.

Copyright Graeme Pietersz © 2005-2019