SONIA
SONIA is an overnight benchmark administered by the Bank of England, reflecting eligible unsecured sterling wholesale deposits. It is commonly compounded over an interest period in loans and other contracts. The daily overnight rate is different from a forward-looking term rate, and the contract specifies conventions such as the observation period and any margin. Although described as a risk-free reference rate, it is a market benchmark rather than a guarantee that every borrower has no credit risk.
Worked example
A loan specifies compounded SONIA plus a margin of 2 percentage points. If the agreed period's compounded annualised rate is 4%, the indicative annualised loan rate is 6%, subject to the contract's day-count and observation conventions.
Common mistake
Using one day's SONIA as if it were automatically the rate fixed for a whole year, or calling the unsecured SONIA rate a secured Treasury repo rate.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Supporting | September 2026–June 2027 |