An interest rate floor can be used by a depository institution to lock in an interest rate spread over its cost of funds but maintain the opportunity to benefit if rates decline.

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An interest rate floor provides a minimum interest rate level below which the interest rate on a floating-rate instrument cannot fall. This can help a depository institution to protect against a decline in interest rates but still maintain the potential to benefit if rates increase. An interest rate floor can be used to lock in an interest rate spread over the institution's cost of funds.

An Interest Rate Floor Can Be Used by a Depository