Index Yield Definition

The index yield corresponds with a published interest rate, such as the Prime Rate, LIBOR (London Inter-bank Offered Rate), Treasury Bill/Treasury Note rate, 11th District COFI (Cost of Funds Index), etc.

Lenders use these to establish interest rates charged on loans or to compare investment returns. A final loan rate typically includes an Index Yield plus a spread. If you know the basis of what your lender uses, you can always have a good idea of what your interest rate will be. For example, if your lender typically charges 2 points over prime, then if the prime rate is 6%, your loan rate would be 8%.

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