Banky team Reviewed editorial answerThe floor guarantees one specific thing: the rate will not fall below a figure written in the terms during the certificate's term. The rate is computed as a reference rate plus the bank's margin, and if that result falls below the floor, the floor applies.
Hypothetical example per 100 pounds with monthly payout: a reference of 18%, a margin of 2% and a floor of 17%. Today the rate is 20% and the payout about 1.67 pounds. If the reference became 14%, reference plus margin would be 16%, so the 17% floor applies and the payout is about 1.42. If the reference rises, the payout rises. This illustrates the mechanism; no forecast is implied.
Agreed in the contract: the floor, the margin, the definition of the reference, and when the rate changes. Not agreed: the level of the reference, so any figure above the floor is an estimate at today's rate.
The floor does not protect you if you break the certificate early; then the break terms govern and may reduce the return for the period already held.
Read in the key-facts statement: the rate floor, the margin, the reference, whether there is a cap, and the break-penalty table.