What do interest rate changes do to my bonds and deposits?
When rates rise, the price of bonds you already hold falls, and new bonds and deposits pay more. When rates fall, the reverse. Longer bonds move most; a fixed deposit locks its rate in.
Bond prices and interest rates move in opposite directions. When market rates rise, a fixed-rate bond you already own is worth less, because new bonds pay more; when rates fall, it is worth more. Deposits behave differently: their value does not move, but the rate they pay either follows the market (variable) or stays locked until maturity (fixed). Both effects run in your favour as often as against you — a rise in rates hurts what you hold and improves what you buy next.
Why a bond’s price moves
A bond promises fixed payments. If new bonds start paying more, nobody will pay full price for yours, so its price falls until a buyer would earn the going rate. The SEC’s own example: a 10-year Treasury bond paying 3%, bought for $1,000. If market rates rise to 4% a year later, it is worth about $925; if they fall to 2%, about $1,082. The SEC is explicit that this applies to government bonds too — the government promises the payments, not the price before maturity.
Longer bonds move more
The SEC also notes that longer maturities and lower coupons mean more sensitivity, because more of the value lies in payments far in the future. FINRA calls the measure of this sensitivity duration. The difference is large:
| Bond paying 3%, bought at 1,000 | Price if rates rise at once to 4% | Change |
|---|---|---|
| Matures in 2 years | about 981 | −1.9% |
| Matures in 10 years | about 918 | −8.2% |
| Matures in 30 years | about 826 | −17.4% |
Holding to maturity, and holding a fund
If you hold a single high-quality bond to maturity, the price swings in between matter less: you receive the interest and the face value at the end, as long as the issuer pays. A bond fund never matures — it keeps selling old bonds and buying new ones — so its price reflects every rate change. That is how 2022 surprised many cautious investors: US 10-year Treasuries lost 17.8% that year, in the same year shares fell 18.0%.
The loss has a second half. After rates rise, the fund reinvests at the higher yields, so its future income is larger. A saver with money still to invest is better off after a rise, not worse.
What happens to deposits
- Variable savings accounts follow the central bank. The Bank of England explains that when it raises Bank Rate, banks usually raise what they pay on savings and charge on loans, and the reverse when it cuts.
- Fixed or term deposits lock a rate for the term. They do not fall in value when rates rise, but nor do they benefit; if rates fall, you keep the higher rate until maturity.
- At maturity you reinvest at whatever rates are then, which may be lower. Staggering maturities across several years spreads that risk.
- Check the terms for withdrawing a fixed deposit early before you lock money into one.
Investments · Cash savings & bank deposits
| Type | Bank | Rate | Balance | What it is for |
|---|---|---|---|---|
| Savings account | A UAE bank | — | AED 40,000 | Emergency fund |
| Savings account | An Indian bank | — | ₹5,40,000 | Emergency fund |
| Fixed or term deposit | An Indian bank | Use typical | ₹6,00,000 | Emergency fund |
Set aside for emergencies: ₹5.4L — held on the Freedom Ladder’s Survival rung, outside the independence corpus.
Cash savings and bank deposits in Investments, for the illustrative household: a savings account in the UAE, a savings account in India ticked as the emergency fund, and a fixed deposit in India.
- Type — Savings account or Fixed or term deposit, the two kinds that behave differently when rates move.
- Rate — what the deposit pays, if you know it. Left empty, Use typical shows a typical range and fills in its middle; a rate taken that way says it came from our typical range, not from you.
- What it is for — tick Emergency fund for money you keep for shocks.
Illustrative figures — not anybody’s real plan.
Common mistakes
- Assuming government bonds cannot fall in value before they mature.
- Buying long bonds or a long bond fund for the higher yield, for money you may need in two years.
- Treating a bond fund as if it were a deposit.
- Locking all your savings into one long fixed deposit, and having none free when you need it or when rates rise.
In your plan
Nivritee does not price bonds one by one, and the rate you record against a deposit is shown beside it rather than used to grow it: your savings grow at your plan’s return assumptions. Investment return after you stop earning is set for a portfolio tilted towards bonds, and is lower than the working-years figure by design. If you hold mostly deposits and bonds, check that your assumption reflects it (which rate to assume). The stress test A sustained inflation shock shows what years of higher inflation do to the plan.
Sources
- Investor Bulletin: Interest Rate Risk — When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall — U.S. Securities and Exchange Commission
- Bonds — FINRA
- What are interest rates? — Bank of England (figures as of 2026-07-30)
- Historical Returns on Stocks, Bonds and Bills: 1928–2025 — Aswath Damodaran, NYU Stern School of Business (figures as of 2026-01-05)
See this in your own plan.
Open You & your assumptionsLast reviewed 1 October 2026.
This is general information, not advice for your circumstances. Rules and limits change; check the official source for your country, and consult a licensed professional before making financial decisions.