Floating Rate Notes (FRNs)
Floating Rate Notes (FRNs) are relatively short-term investments that:
- mature in two years
- pay interest four times each year
- have an interest rate that may change, or "float," over time
You can hold an FRN until it matures or sell it before it matures.
FRNs at a Glance
| Issued in | Electronic form only |
|---|---|
| Matures in | Two years |
| Interest rate | Varies. It's the sum of an index rate (tied to the highest accepted discount rate of the most recent 13-week Treasury bill) plus a spread that's fixed for the life of the note. |
| Interest paid | Every three months until maturity |
| Minimum purchase | $100 |
| In increments of | $100 |
| Max. purchase amount | $10 million (non-competitive bid) / 35% of offering amount (competitive bid) |
| Taxes | Federal tax due each year on interest earned. No state or local taxes. |
| Eligible for STRIPS? | No |
How we calculate the floating interest rate
The interest rate of an FRN is the sum of two components: an index rate and a spread.
Index rate. Tied to the highest accepted discount rate of the most recent 13-week Treasury bill. Since we auction the 13-week bill every week, the index rate resets every week.
Spread. A rate that stays the same for the life of the FRN, set at the auction when the FRN is first offered.