# Cumulative compounded rate

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*Reference rates - risk-free rates.*

(CCR).

The compounded risk-free interest rate (RFR) applicable over a given period.

**Sterling Loan Conventions recommend Non-cumulative compounded rate (NCCR)**

- "There are a choice of approaches to the calculation of compounded rate interest on loans.

- The additional amount of interest owed each day can be calculated either by applying the daily RFR to (1) the balance of the loan or (2) to the rate itself:

**(1) Compounding the balance:**The daily RFR is multiplied by the outstanding principal and unpaid accrued interest (collectively, the balance).

**(2) Compounding the rate:**The rate itself is compounded and multiplied by the outstanding principal.

- ... there are two approaches to compounding the rate:

- Cumulative compounded rate (CCR): The compounded rate is calculated at the end of the interest period and that rate is then applied to the whole period. This method allows interest for the whole period to be calculated using a single compounded rate.
- Non-cumulative compounded rate (NCCR): This rate is derived from the CCR. The NCCR for a given day is the CCR for that day minus the CCR for the previous day. This generates a daily compounded rate which allows the calculation of a daily interest amount. These daily interest amounts are added up to provide a rate over the required period, enabling accurate calculation of accrued interest at any point in time.

- ISDA uses the CCR method in its IBOR fallbacks for derivatives. The CCR method is also used in capital markets products.

- The Sterling Loan Conventions however, recommend the NCCR method for loans, because it better supports intra-period events such as prepayments and trading."

*The ACT Borrower’s Guide to the LMA’s Investment Grade Agreements - 6th edition - 2022 - p31.*

## See also

- Capital market
- Compound
- Derivative instrument
- Fallback
- IBOR
- International Swaps and Derivatives Association (ISDA)
- Non-cumulative compounded rate (NCCR)
- Prepayment
- Principal
- Reference rate
- Risk-free rates (RFR)
- Sterling Loan Conventions
- Trading