Deposit Glossary
Reinvestment Risk
A practical explanation of Reinvestment Risk, including what it means, how it is used, and why it matters in real savings decisions.
Definition
Reinvestment risk refers to the risk that after the expiration of the original high interest rate product, the market interest rate has declined, resulting in funds can only be redeployed with lower returns.
? Why Should You Understand Reinvestment Risk？
In the interest rate downturn cycle, it is likely that short-term products will no longer be able to buy the original high interest rates after they expire, which is why many people will lock in long-term fixed deposits in advance.
Key Points for Understanding This Term
- The lower the interest rate, the more important the reinvestment risk is.
- Both long-term time deposits and tiered deposit methods can hedge this risk to a certain extent.
- Over-reliance on short deposits and short fetches amplifies reinvestment risks.
Further Reading
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