Information on the new SARON® benchmark interest rate
LIBOR (the London Interbank Offered Rate) will be discontinued at the end of 2021. For Swiss francs, LIBOR will be replaced by SARON® (the Swiss Average Rate Overnight). SARON® will be calculated and published daily by SIX Swiss Exchange based on transactions actually executed and prices in the Swiss money market. Please find below more information on the new SARON®.
A brief explanation of SARON®
In 2009 the Swiss National Bank (SNB) and SIX Swiss Exchange jointly developed CHF benchmark interest rates for the financial markets. Unlike LIBOR, SARON® is based on actual transactions in the Swiss money market. Interest is calculated using the daily compounded rate (SARON® Compound). This means a change of paradigm in calculation: whereas with LIBOR the interest rate was known at the start of the period, SARON® is not known until the period has ended (lookback variant).
The new SARON® products from Bank CIC
Bank CIC has two products that allow financing using SARON®.
The Flex mortgage is a way of financing real estate (residential or commercial) where the interest rate is adjusted regularly every 1, 3 or 6 months in line with the SARON® rate. Interest is calculated using the daily compounded rate (SARON® Compound). The rate is therefore not known until the end of the period. When interest rates are rising, the client can choose to change to another mortgage model at the end of the rollover term.
CIC Flex advance
CIC Flex advance is a medium-term loan for investment, working capital or start-ups. It has a floating interest rate adjusted in line with the SARON® rate every 1, 3 or 6 months. It is calculated using the daily compounded rate (SARON® compound). The interest rate on the CIC Flex advance is set at the start of each agreed interest rate period. This means the rate may be slightly higher than on the Flex advance. The rate remains constant during each of these periods. If interest rates rise the client can switch to another mortgage model at the end of each term.
Frequently asked questions
Until now, the interest rate on money market mortgages has been based on LIBOR (the London Interbank Offered Rate). This indicates the rate at which banks lend each other money in the market. For many maturities no transactions are actually being executed anymore and CHF LIBOR is calculated based almost entirely on expert opinions rather than actual transactions in the market. Since the global financial crisis, activity in the money market has switched from being unsecured towards secured.
LIBOR is the rate at which banks lend to each other. There are no actual transactions behind LIBOR; it is based almost entirely on agreements and expert opinions reached between the banks.
SARON® (the Swiss Average Rate Overnight), by contrast, is calculated and published by SIX every day based on transactions executed between banks and non-banks in the Swiss money market. Unlike LIBOR, SARON® is a secured interest rate that uses daily average compounding (SARON® Compound). This is why the rate is not known until the end of the period.
SIX is responsible for calculation and publication. The method of calculation is based on the collaboration between SIX and the Swiss National Bank. SARON® has been calculated since 2009, based on transactions actually executed in the Swiss money market.
The closing rate is publicly available and released by SIX every day at 6 p.m.
At the end of each interest rate period another period begins, with SARON® being recalculated. As a client with a money market mortgage you benefit from transparent and market-related interest rates and a quick adjustment to the interest you pay when rates are falling. When rates are rising, you can quickly and flexibly change to another mortgage model at the end of the rollover term and/or choose a combination of several mortgage models.
You will be notified separately in good time about the planned changes and what you need to do.