Business and Personal Finance Dictionary

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• INDEX RATE
  
  The rate to which the interest rate on an adjustable rate loan is tied (see adjustable-rate mortgage). At set adjustment periods, the borrower's interest rate will move up or down as the index rate changes. Four indices are most commonly used: Six-Month Certificate Of Deposit (CD) Spot Index—This index is the weekly average of the interest rates paid by institutions on negotiable six-month certificates of deposit. Because it reflects every blip and swing of the market, it can change quickly. One-Year Treasury Spot Index—This index is the weekly average interest paid by the U.S. Government on funds borrowed for one year. It changes more slowly than the CD index. Treasury Twelve-Month Average Index—This index is the yearly average of the monthly interest paid by the U.S. Government on actively traded securities. It changes more slowly than either of the preceding indices. Eleventh District Cost-of-Funds Index—This index is the monthly weighted average cost of what banks on the West Coast pay for their various deposits and for the advances they get through the Federal Home Loan Bank Board of San Francisco. It moves at a tortoise's pace compared to the other indices.
  
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