risk-free interest rate

Definition

The rate of return that can be obtained by investing in financial instruments which have minimal likelihood of defaulting. As such a risk-free rate only exists in theory, it can be implemented practically by using government treasury bonds as the benchmark. These bonds still have a very small amount of risk but the likelihood of the government defaulting is very low.

Use this term in a sentence

You should try and find a risk-free interest rate that will offer you greater flexibility during the time you have it.

​ Was this Helpful? YES  NO 6 people found this helpful.

The vast difference between the risk-free interest rate and other riskier bond rates lead many economists to believe that something was wrong in 2008.

​ Was this Helpful? YES  NO 11 people found this helpful.

When setting a financial goal for yourself, such as planning for a vacation or saving for college, It is in your best interest to look for investments that have a risk-free interest rate, such as a treasury bond.

​ Was this Helpful? YES  NO 11 people found this helpful.

Show more usage examples...

Related Terms

Browse Definitions by Letter: # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
risk-free asset hedged portfolio