# What Is Sterling Overnight Interbank Average (SONIA) Rate?

![A trader in the United Kingdom tracks the Bank of England SONIA indexe to prepare for off-hours trading.](https://www.investopedia.com/thmb/h3bDnMnDjn8s9UsK0pJAnlaCFeY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatIsSterlingOvernightInterbankAverageSONIARate-965367dce6184454b69802515ea19007.jpg)

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## What Is the Sterling Overnight Interbank Average (SONIA) Rate?

The Sterling Overnight Index Average (SONIA) rate is an interest rate benchmark used in the United Kingdom. It is the effective overnight interest rate paid by banks for [unsecured](https://www.investopedia.com/terms/u/unsecured.asp) transactions in the British sterling market. Administered by the [Bank of England (BoE)](https://www.investopedia.com/terms/b/boe.asp), SONIA is used to fund trades that occur overnight during off-hours. As such, it represents the depth of overnight business in the marketplace.

### Key Takeaways

*   The Sterling Overnight Index Average, or SONIA, is an index of very short-term unsecured loans among and between U.K. financial institutions.
*   Launched in 1997, several changes made in 2017 and 2018 have led the SONIA rate to be the preferred risk-free benchmark interest rate by U.K. securities dealers.
*   This comes as the LIBOR rate, and its methodology for calculation, has come under criticism for fixing and fraud.

## Understanding the Sterling Overnight Interbank Average (SONIA) Rate

The Sterling Overnight Interbank Average Rate is a [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) interest rate used in the United Kingdom and operated by the BoE. It represents the average interest rate banks use when they borrow British currency from others, including financial institutions and large [institutional investors](https://www.investopedia.com/terms/i/institutionalinvestor.asp).

Calculated each business day in London, SONIA fixing is the weighted average rate of unsecured overnight sterling transactions that are brokered by members of the Wholesale Markets Brokers’ Association. The daily SONIA rate as of June 15, 2023, was 4.42840%.

The eligibility criteria for transactions to qualify for SONIA include:

*   Must be reported to the BoE's Sterling Money Market daily data collection
*   Unsecured with a [maturity date](https://www.investopedia.com/terms/m/maturitydate.asp) of one business day
*   Same-day settled transactions that take place between 12 a.m. and 6 p.m.
*   A minimum deal size for inclusion is £25 million

SONIA "provides up-front certainty of the amount of interest due at the end of the interest period." The rate also encouraged the formulation of the [Overnight Index Swap (OIS)](https://www.investopedia.com/terms/o/overnightindexswap.asp) market, and the Sterling Money Markets in Great Britain. SONIA is a widely used benchmark for many financial transactions, among which is the reference rate for the sterling OIS market.

> **Fast Fact**
>
> According to the BoE, the rate is "used to value around £30 trillion of assets each year."

## Calculating the SONIA Rate

Here's how SONIA is calculated:

*   The central bank collects the previous day's data from banks and financial institutions by 7 a.m.
*   Data is analyzed to ensure it is accurate and formatted properly
*   The bank calculates the rate along with any other necessary statistics

Once all of these steps are completed, the BoE publishes the rate.  

## History of the SONIA Rate

SONIA was established in 1997 by the WMBA in the United Kingdom. The [Financial Conduct Authority (FCA)](https://www.investopedia.com/terms/f/financial-conduct-authority-uk-fca.asp) in the U.K. regulated the WMBA as a calculation and publication agent. The WMBA had no sterling overnight funding rate before SONIA. This created [volatility](https://www.investopedia.com/terms/v/volatility.asp) in the country's overnight interest rates. The creation of SONIA brought stability to overnight rates.

The rate is managed and operated by the BoE, the country's central bank, which took control of the rate in April 2016. The central bank made changes to the way it calculates SONIA in April 2018 and began publishing the SONIA Compounded Index on a daily basis in August 2020.

In April 2017, the Working Group on Sterling Risk-Free Reference Rates, which is a group of active, influential dealers in the sterling interest rate swap market, announced SONIA would be its preferred, near-risk-free interest rate benchmark. This change impacted sterling [derivatives](https://www.investopedia.com/terms/d/derivative.asp) and related financial contracts. It also provided an alternative interest rate to the dominant [London Interbank Offered Rate (LIBOR)](https://www.investopedia.com/terms/l/libor.asp). To that end, the FCA announced it would no longer require banks to submit LIBOR quotes after 2021.  

> **Important**
>
> SONIA provided traders and financial institutions with an alternative to the LIBOR as a benchmark for short-term financial transactions. All contracts using LIBOR are to be wrapped up by June 30, 2023. LIBOR will be replaced by the Secured Overnight Financing Rate (SOFR).

### Changes to the SONIA Rate

The Bank of England reported several changes that became valid as of April 2018:

1.  SONIA was expanded to include overnight unsecured transactions which will be negotiated bilaterally as well as those arranged via [brokers](https://www.investopedia.com/terms/b/broker.asp). They now collect data using their Sterling Money Market data collection system.
2.  The bank uses a volume-weighted trimmed mean method for calculating the rate.
3.  The SONIA rate appears on the business day after the day the rate relates at 9 a.m. This delayed publication allows the bank to account for a higher [volume](https://www.investopedia.com/terms/v/volume.asp) of activity.   
    

## What Is the Sterling Overnight Interbank Average Rate?

The Sterling Overnight Interbank Average rate is a benchmark interest rate used in the United Kingdom. The rate, which is managed, calculated, and published by the Bank of England, is the overnight interest rate that banks and other financial institutions pay for [unsecured](https://www.investopedia.com/terms/u/unsecured.asp) transactions in the British sterling market. Transactions must meet certain criteria to qualify. Among them, transactions must be executed between a certain time frame (12 a.m. and 6 p.m.) and must be worth at least £25 million.

## What Is the Current SONIA Rate?

The SONIA rate calculated, published, and set on June 15, 2023, was 4.42840%.

## Who Oversees SONIA?

The Bank of England manages and operates the Sterling Overnight Interbank Average rate. It took control of SONIA in 2016 and made changes to its methodology two years later. But it was established by Wholesale Markets Brokers’ Association in 1997. Prior to this, there was no such rate. As such, there was a greater degree of volatility in the overnight interest rate environment in the United Kingdom. SONIA, though, brought more stability to these rates. It is now used as a broad benchmark for different types of unsecured financial transactions.

## The Bottom Line

The Bank of England is responsible for publishing the SONIA rate, which is the interest rate benchmark used by banks for different unsecured financial transactions in the overnight sterling market. It provides some degree of stability to the country's overnight market and represents the depth of overnight business in the country's financial markets.

> **Article Sources**
>
> 1.  FRED Economic Data. "[Daily Sterling Overnight Index Average (SONIA) Rate](https://fred.stlouisfed.org/series/IUDSOIA)."
>     
> 2.  Bank of England. "[SONIA key features and policies](https://www.bankofengland.co.uk/markets/sonia-benchmark/sonia-key-features-and-policies)."
>     
> 3.  NatWest Group. "[SONIA - An overview](https://www.rbs.com/content/rbs_com/en_uk/rbs/libortransition/sonia-an-overview.html)."
>     
> 4.  Bank of England. "[SONIA interest rate benchmark](https://www.bankofengland.co.uk/markets/sonia-benchmark)."
>     
> 5.  WMBA. "[Administration](https://www.wmbaltd.com)."
>     
> 6.  Intercontinental Exchange. "[LIBOR®](https://www.theice.com/iba/libor)."