It stands for sterling overnight index average. It is an interest rate benchmark (overnight rate) published by Bank of England based on actual transactions in reflection of the average of the interest rates that banks pay to borrow sterling (currency) overnight from other financial institutions and other institutional investors. SONIA is a risk-free rate (RFR), where no bank credit risk is involved (at least virtually).

SONIA is used and applied in many ways, including determination of the interest to be paid on swap transactions and sterling-denominated floating rate securities.

This rate is applied to bank transactions in the British Sterling Market during off hours. The SONIA fixing is calculated, each business day in London, as the weighted average rate of all unsecured overnight sterling-denominated transactions brokered there by Wholesale Markets Brokers’ Association (WMBA) members between 12am and 3.15pm London time in a minimum deal size of £25m.

As quoted, SONIA is provided as an annualized compounded interest rate is for any set period since the Bank of England started publishing this benchmark.

SONIA replaced GBP LIBOR across global financial markets by the end of 2021.