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What is the Interbank Rate?

What is the Interbank Rate?

The interbank rate is the average lending rate used between banks of comparable size and creditworthiness when they borrow money from each other.

The Federal Funds Rate is the benchmark in America, while LIBOR (the London Interbank Offered Rate) is more prevalent elsewhere. These are indexes which are used to determine rates and terms for other financial instruments and swaps.

The Prime Rate, or the rate banks will used for their most credit-worthy customers, is tied to the interbank rate but is slightly higher of course. In America the Federal Funds Rate is so called because the Central bank participates in the lending. This is sometimes called the overnight rate when it refers to money that is lent between banks overnight.

Keywords: federal funds rate, LIBOR, prime rate, lending, overnight rate, central banks,