Understanding LIBOR: A Comprehensive Guide to the London Interbank Offered Rate

The LIBOR index is used to decide loan or mortgage rates.

LIBOR is an acronym for London Interbank Offered Rate: a rate of interest calculated based on the information provided by London banks. A group of banks from the British Bankers' Association (BBA) respond daily to a speculative question regarding how much it would cost them to borrow a specific amount of money over various short time periods: one month, three months, six months or a year. The answers provided by the banks help calculate the LIBOR index.

Reading the LIBOR Index

Step 1

Open your Internet browser and navigate to liborated.com.

Step 2

Find the appropriate time frame from the box holding the LIBOR rates (it appears to the left of the window screen); "1 M" for a one-month rate, "2 M" for a two-month rate and so on.

Step 3

Use the figure given next to the time scale as a percentage; for example, if the figure next to "2 M" given is 0.28906, the approximate inter-bank interest rate for a loan over two months would be 0.28906 percent. This would normally round up to 0.29 percent.

Tip

The color of the LIBOR rate, and the arrow to the right of the figure show whether the amount of interest goes up or down. Green numbers and up arrows show a rising interest rate, and red numbers with down arrows show a declining interest rate.

The rate of interest for the large sums of money loaned by banks is much lower than the rate of interest usually charged for smaller sums such as personal loans.