Selic, CDI and IPCA: what they are and why they matter to you

News about interest rates keeps mentioning Selic, CDI and IPCA. They are three acronyms with different roles: one is the basic price of money, another is the benchmark for investments and the third measures inflation. Understanding them helps you read credit and investment offers. The information in this guide is about Brazil.

Selic

The Selic rate (opens in a new tab) is the basic interest rate of the Brazilian economy. The Monetary Policy Committee (Copom) of the Central Bank sets the Selic target at meetings throughout the year. The effective Selic is the average rate of one-day operations between financial institutions using government bonds, and it follows the target closely.

Selic influences the other rates in the economy. When it rises, credit tends to get more expensive and fixed income earns more. When it falls, the opposite happens.

CDI

The CDI (Certificado de Depósito Interbancário, or interbank deposit certificate) is the rate of one-day loans between banks. Because those loans compete with the ones that use government bonds, the CDI stays very close to Selic, usually a little below the target. It is published as a daily rate and is usually expressed per year, on a basis of 252 business days.

The CDI is the benchmark for floating-rate investments. A CDB that "earns 100% of the CDI" pays about the CDI rate; one that earns 110% pays a rate 10% higher.

IPCA

The IPCA (Índice Nacional de Preços ao Consumidor Amplo, the broad consumer price index), calculated by IBGE, is Brazil's official measure of inflation: it shows how much consumer prices changed over a period. It is the basis of the inflation target and the reference for adjusting contracts and bonds.

Real interest: what is left after inflation

A return of 12% a year does not mean your money grew 12% in purchasing power, because prices also rose. The real rate discounts inflation: real interest = (1 + nominal rate) ÷ (1 + inflation) − 1.

With hypothetical values, an investment that earns 12% a year in a period when the IPCA was 4% earns, in real terms, (1.12 ÷ 1.04) − 1 = 7.69% a year. That is the gain in purchasing power, not the number on the statement.

Where these indexes show up

• In loans and financing, the rate can be fixed from the start (prefixed) or floating, tied to an index such as the CDI, the IPCA or the TR (Taxa Referencial, used in home loans and in the savings account). With a floating rate, the installment can change with the index.
• In investments, the return can be prefixed (a fixed rate), floating (a percentage of the CDI) or hybrid (the IPCA plus a fixed rate). To compare products of different kinds, what counts is the net return, as the guide on paying off debt or investing shows.
• In overdue debts, monetary correction usually follows the IPCA and, when the contract has no late-payment interest, the legal rate is Selic minus the IPCA. See the guide on late fees and interest.

How Finasst uses the indexes

Finasst updates Selic, the CDI, the IPCA and the TR every day from Central Bank series. On the investments screen, you choose whether the offer earns a fixed rate, a percentage of an index or an index plus interest, and the projection uses the most recent registered quote of the chosen index.

Remember that indexes vary. The projection assumes the last value holds for the whole term, so use it to compare offers with each other, not as a forecast of what will happen. To understand how monthly and annual rates convert, see the guide on nominal and effective rates.