Euro Short-Term Rate (€STR): The EU’s Benchmark Interest Rate

Written by Kelly Bailey

Reviewed by Jeff Schmidt

Read Time 3 minutes

What is €STR?

The Euro Short-Term Rate (€STR or ESTER) is the European Union’s official overnight benchmark interest rate. It reflects the average rate at which banks and financial institutions borrow euros overnight on an unsecured basis, meaning no collateral is used.

Published by the European Central Bank (ECB), €STR provides a consistent reference point for short-term borrowing costs across euro-denominated financial markets.

Euro Short-Term Rate (€STR)

Key Highlights

The Euro Short-Term Rate (€STR or ESTER) is the European Union’s primary risk-free interest rate benchmark. It replaced the Euro Overnight Index Average (EONIA) in 2022.

€STR is based on actual transactions, not estimates, making it a more transparent, reliable benchmark that reflects real market conditions.

The European Central Bank publishes the official €STR figure each business day at 8:00 a.m. Central European Time for the previous business day.

The Transition From EONIA to €STR

Historically, the Euro Overnight Index Average (EONIA) was the primary reference rate for overnight borrowing in euros. However, EONIA relied on data submitted by a small panel of banks, rather than actual market transactions, which made it vulnerable to manipulation.

Following global manipulation scandals involving historical benchmarks like LIBOR, the ECB sought a rate based on real, verifiable market activity. This led to the development of the Euro Short-Term Rate (ESTER), later named €STR, which became the official overnight benchmark for the Eurozone in 2022.

€STR’s Role in European Financial Markets Today

As the Eurozone’s primary risk-free rate (RFR), €STR reflects overnight borrowing costs with minimal credit and liquidity risk.

€STR is widely used in:

Derivatives contracts like interest rate swaps and futures.
Loan agreements with variable or floating interest rates.
Debt issuance including government and corporate bonds.
Monetary policy operations by the ECB.

By providing a consistent reference for short-term borrowing costs, €STR helps anchor the pricing of euro-denominated financial products across these markets.

How €STR Is Calculated

The European Central Bank (ECB) calculates and publishes €STR every business day, using data from the euro money markets.

Here’s a simple breakdown of how it works:

Data Source: €STR is based on overnight unsecured borrowing transactions between banks and other financial institutions in the euro area.
Transaction Criteria: Only eligible overnight trades are included. These are unsecured (no collateral required) and reflect wholesale market activity between financial institutions.
Calculation Method: The ECB applies a volume-weighted trimmed mean. “Trimmed” means the ECB excludes the top and bottom 25% of transaction volumes to minimize the influence of outlier trades. Then the average rate is calculated based on the remaining data.
Publication Time: The official €STR rate is published by the ECB each business day at 8:00 a.m. Central European Time (CET), reflecting the previous day’s transactions.

This transparent, transaction-based approach helps ensure that ESTER accurately reflects real market borrowing costs, providing a reliable reference rate for financial markets.

Euro Short-Term Rate (€STER) as of 04 June 2025

Common Misconceptions About €STR

€STR is still relatively new to many outside institutional finance, so it’s easy to confuse it with other types of interest rates or benchmarks. The table below highlights some of the most common misconceptions and explains how €STR actually works.

The Myth	The Facts
€STR is a consumer lending rate.	€STR doesn’t impact credit card rates, personal loans, or mortgage rates directly.
€STR replaced LIBOR.	€STR replaced EONIA for euro-denominated transactions. LIBOR replacements vary by currency; for example, SOFR is used in U.S. dollar markets.
€STR measures only interbank lending.	€STR captures a broader range of overnight borrowing between banks and other financial institutions.
€STR includes secured transactions.	€STR is based solely on unsecured borrowing, providing a cleaner reference for risk-free interest rates.

€STR and Other Benchmark Rates: Key Takeaways and Next Steps

Whether you work in capital markets, corporate finance, or risk management, understanding €STR is essential to work confidently with euro-denominated financial products. Benchmark rates like €STR are part of the core knowledge professionals rely on to analyze capital markets, evaluate derivatives transactions, and assess market risk.

As you deepen that knowledge, combining it with practical skills creates a strong foundation for you to make informed investment decisions and optimize returns in a complex global investment landscape.

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