what is a variable interest rate 
a variable interest rate sometimes called an adjustable or a floating rate is an interest rate on a loan or security that fluctuates over time because it is based on an underlying benchmark interest rate or index that changes periodically the obvious advantage of a variable interest rate is that if the underlying interest rate or index declines the borrower s interest payments also fall conversely if the underlying index rises interest payments increase unlike variable interest rates fixed interest rates do not fluctuate understanding variable interest ratesa variable interest rate is a rate that moves up and down with the rest of the market or along with an index the underlying benchmark interest rate or index for a variable interest rate depends on the type of loan or security but it is often associated with either the london inter bank offered rate libor or the federal funds rate variable interest rates for mortgages automobiles and credit cards may be based on a benchmark rate such as the prime rate in a country banks and financial institutions charge consumers a spread over this benchmark rate with the spread depending on several factors such as the type of asset and the consumer s credit rating thus a variable rate may bill itself as the libor plus 200 basis points plus 2 residential mortgages for instance can be obtained with fixed interest rates which are static and cannot change for the duration of the mortgage agreement or with a floating or adjustable interest rate which is variable and changes periodically with the market variable interest rates can also be found in credit cards corporate bond issues swap contracts and other securities due to recent scandals and questions around its validity as a benchmark rate libor is being phased out according to the federal reserve and regulators in the u k libor will be phased out by june 30 2023 and will be replaced by the secured overnight financing rate sofr as part of this phase out libor one week and two month usd libor rates will no longer be published after december 31 2021 variable interest rate credit cardsvariable interest rate credit cards have an annual percentage rate apr tied to a particular index such as the prime rate the prime rate most commonly changes when the federal reserve adjusts the federal funds rate resulting in a change in the rate of the associated credit card the rates on variable interest rate credit cards can change without advance notice to the cardholder variable interest rate credit cards can change rates without telling their customers within the terms and conditions document associated with the credit card the interest rate is most commonly expressed as the prime rate plus a particular percentage with the listed percentage being tied to the creditworthiness of the cardholder an example of the format is the prime rate plus 11 9 variable interest rate loans and mortgagesvariable interest rate loans function similarly to credit cards except for the payment schedule while a credit card is considered a revolving line of credit most loans are installment loans with a specified number of payments leading to the loan being paid off by a particular date as interest rates vary the required payment will go up or down according to the change in rate and the number of payments remaining before completion 