Converting the €STR Annual Rate to Overnight Interest

Summary

The note clarifies how to interpret the euro short-term rate (€STR) when estimating interest on a single overnight loan. The quoted rate is expressed as an annual rate using an Actual/360 day-count convention. Under that convention, the overnight interest amount is calculated by applying the annual rate over one day, or dividing the annual rate by 360 for a one-day period.

The response directly addresses whether the published figure is itself the overnight rate: it is an annualized quote, not a separate compounded daily return requiring a 365-day exponent. The explanation is brief and does not discuss transaction-specific conventions, compounding over longer periods, or how negative rates are applied in contracts. It is a useful rate-conversion point, but not a broader treatment of money-market pricing.

Key ideas

• €STR is quoted as an annual rate rather than as the standalone interest rate for one night.
• The stated day-count basis is Actual/360.
• For a one-day loan, the annual rate is prorated over 360 days to estimate overnight interest.
• The response does not cover contractual variations or compounding across longer periods.

Tags

# Euro short-term rate (€STR) question


# Euro short-term rate (€STR) question












Based on the latest data published by ECB,€STR = -0.56%. Is this the rate a bank would pay to borrow overnight or it's an annualised overnight rate so the actual overnight rate can be approximated with (1 - 0.56%)^(1/365) - 1?

## Answer by dm63 (score 1)

https://quant.stackexchange.com/a/60908

It is an annual rate, with a Actual/360 day count so the interest paid on an overnight loan is -0.56%/360.

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