Investing and Money Glossary, terms and definitions.

Interest rate risk

All investors are affected by interest rate risk or the chance that interest rates will change the value of their investment. But interest rates have the greatest impact on bonds. When rates rise, the value of bonds fall. And the longer the term of the bond, the more it falls. So an increase in interest rates will have a much greater impact on a 30-year bond than on a five-year bond.