Interest rate swap

An interest rate swap is a deal between two investors. One has his money in a product paying a fixed rate of interest, such as a government bond; the other in a variable rate instrument that pays out in line with short-term interest rates. To hedge against future interest rate movements, the investors may agree to ‘swap’ the interest payments they get.

For example, banks tend to have liabilities, such as deposits, that pay out at variable rates, but assets that receive a fixed return. That makes them vulnerable to rising short-term rates and so they may want to shield themselves by swapping their fixed interest for variable income. ‘Swaps’ are closely watched as an indicator of where markets think interest rates are heading.

• See Tim Bennett’s video tutorial: Beginner’s guide to investing: What is a swap?

Paul Hodges: house prices could fall 50% in 'Great Unwinding'

Merryn Somerset Webb interviews Paul Hodges about deflation, the global economy's 'Great Unwinding', and how Britain's house prices could halve.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


26 January 1808: Australia's Rum Rebellion

On this day in 1808, Major George Johnson carried out the only forceful takeover of power in Australian history during the Rum Rebellion.