What Is a Risk-Free Reference Rate?

A risk-free reference rate (RFR) is a benchmark interest rate calculated from actual, observable transactions in a highly liquid, low-risk market — rather than from estimates or expert judgment submitted by a panel of banks. RFRs are the replacement for LIBOR, which was phased out after a rate-rigging scandal exposed how easily panel-based benchmarks could be manipulated.

The name is slightly misleading: an RFR isn't literally free of risk. It's "risk-free" in the narrower sense that it strips out the bank credit risk premium that was embedded in LIBOR — the extra spread banks charged each other for unsecured lending. What's left is closer to the pure time value of money in a given currency.

Every major currency now has its own administrator-published RFR:

Currency	Rate	Administrator	Basis
US Dollar	SOFR	Federal Reserve Bank of New York	Secured (Treasury repo)
British Pound	SONIA	Bank of England	Unsecured overnight interbank
Euro	€STR	European Central Bank	Unsecured overnight interbank
Japanese Yen	TONA (TONAR)	Bank of Japan	Unsecured overnight call

Today's Rates at a Glance

Benchmark	Latest Print	Date	Underlying Policy Rate
SOFR	3.62%	Aug 12, 2026	Fed funds target: 3.50%–3.75%
SONIA	3.7315%	Aug 11, 2026	BoE Bank Rate: 3.75%
€STR	2.185%	Aug 12, 2026	ECB deposit facility: 2.25%
TONA (TONAR)	0.978%	Jul 8, 2026	BoJ policy rate: ~1.00%

Sources: New York Fed (via FRED), Bank of England (via FRED), European Central Bank (via FRED), Bank of Japan. Each overnight RFR trades a small technical spread below its central bank's policy target — that's expected, not a sign anything is wrong.

For live figures and historical charts, see our current & historical rates page.

Why RFRs Replaced LIBOR

LIBOR was set daily by a panel of banks estimating what they thought they'd pay to borrow from each other — no requirement that any actual trade back up the number. That structure was exploited during the 2008 financial crisis and again in the LIBOR-rigging scandal that followed, where traders coordinated submissions to benefit derivatives positions.

Regulators in every major jurisdiction responded the same way: identify a transaction-based rate, and migrate the market to it. USD LIBOR panels stopped publishing most tenors at the end of June 2023, GBP and JPY LIBOR ended in December 2021, and by now virtually all new loans, bonds, and derivatives in these currencies reference an RFR instead. Our guide to the LIBOR-to-SOFR transition covers that history in more depth, including how the credit adjustment spread bridges legacy LIBOR contracts to their RFR replacements.

How the Four Major RFRs Differ

Although all four are overnight, transaction-based rates, the details vary in ways that matter for anyone comparing loans across currencies:

Feature	SOFR	SONIA	€STR	TONA
Market measured	Treasury repo (secured)	Unsecured interbank	Unsecured interbank	Unsecured interbank call
Day count convention	Actual/360	Actual/365	Actual/360	Actual/365
Publication	Next business day, ~8:00 a.m. ET	Next business day	Next TARGET2 day, 08:00 CET	Next business day
Forward-looking term rate	Term SOFR (CME Group)	None widely used	None widely used	TORF (QUICK Benchmarks)

SOFR stands apart because it's a secured rate, collateralized by US Treasury securities, while the other three are unsecured interbank rates. That's also why SOFR can spike around quarter-ends when repo market demand for Treasury collateral jumps — a dynamic we cover in why SOFR sometimes spikes. The day count split matters too: USD and EUR facilities accrue interest on an Actual/360 basis, while GBP and JPY use Actual/365, so the same nominal rate produces slightly different interest on otherwise identical loans. Our day count conventions guide walks through the math.

How RFRs Actually Show Up in a Loan

Because RFRs are overnight rates, they can't just be quoted once at the start of a loan period the way LIBOR was. Lenders and borrowers settled on a small number of conventions to turn a series of daily overnight fixings into a single period interest figure:

Compounded in arrears — the ARRC-recommended approach for SOFR and SONIA loans. Daily rates compound over the interest period using a lookback period and, often, an observation shift, so the final number is only known close to the payment date. See our compounded SOFR in arrears guide for a worked example.
Term rates — Term SOFR (from CME Group futures) and TORF (for TONA) are forward-looking rates fixed at the start of the period, closer in spirit to how LIBOR worked. Not every RFR has a liquid term-rate equivalent; SONIA and €STR generally don't.
Simple average / SOFR Index — an alternative to daily compounding that some facilities use, built from the New York Fed's published SOFR Index.

Whichever convention your facility agreement specifies, the building blocks are the same: a daily published rate, a day count convention, and a compounding or averaging method applied over the lookback period. Get any one of those wrong when reconciling a bank's interest invoice, and the number won't tie out — a problem we cover in our guide to verifying bank loan interest.

Frequently Asked Questions

What does RFR stand for? Risk-free reference rate (sometimes just "risk-free rate") — the general term for transaction-based benchmarks like SOFR, SONIA, €STR, and TONA that replaced LIBOR.

Is an RFR actually risk-free? Not in an absolute sense. The term refers to the absence of embedded interbank credit risk, not the absence of interest rate risk — an RFR still moves with central bank policy and market conditions.

Which RFR applies to my loan? It depends on the currency: SOFR for USD, SONIA for GBP, €STR for EUR, and TONA for JPY. Check your facility agreement for the specific benchmark and convention (compounded in arrears, Term SOFR, TORF, etc.) it references.

Do all RFRs move together? Not necessarily. Each tracks its own central bank's policy rate, and those banks don't always move in sync — see our global rate divergence roundup for a recent example of the Fed, ECB, and BoJ pulling in different directions at once.

Calculate Interest on Any RFR-Based Loan

Use our free RFR Loan Calculator to calculate interest on SOFR, SONIA, €STR, or TONA loans — compounded in arrears, with a full daily rate ledger and Excel export. No sign-up required.