Which financial instrument re-adjusts interest rates regularly?

Auction rate securities are a specific type of financial instrument designed to have their interest rates reset at regular intervals, typically through periodic auctions. In these auctions, investors can submit bids to determine the interest rate or yield that will be applied to the securities. This process allows the interest rates to adjust based on current market conditions and demand, which can make auction rate securities attractive to investors seeking potentially higher yields that align with prevailing interest rates.

In contrast, bonds generally have fixed interest rates that do not change over the life of the bond, providing predictable income but lacking the regular adjustment feature that auction rate securities possess. Stocks represent ownership in a company and may pay dividends, but they do not have a fixed interest rate and are not regularly adjusted in the same way. Mutual funds pool money from multiple investors to purchase various securities and offer returns based on the underlying investments; their payouts to investors can fluctuate but do not involve regular interest rate adjustments like auction rate securities.