Interest rate risk is the risk from a varying interest rates on a bond. As rates rise, the price of a bond will fall. If rates fall, the price of a bond rises.
Reinvestment rate risk is the risk of reinvesting the coupon payments from a bond at a lower interest rate. This risk is most pronounced during periods of falling interest rates. In this case, the coupon payments will be re-invested at less than the yield of maturity at the time of purchase
One way to minimize both is to buy zero coupon bonds that have a maturity date of your time horizon. So, if you have 5 years to invest, you buy a 5 year zero coupon bond. By doing this you are exposed to interest rate risk because you will receive a payment that is equal to the face value of the bond. Additionally, since there are no coupon payments from the bond, you have no reinvestment rate risk.
If you are referring to different banks ISAs, their interest rates are all competitive. There is no reinvestment rate risk or ISA risks for savers.All savers ISAs are guaranteed by their banks and you can withdraw your money on demand if you needed it at a moments notice.Personally, I prefer to have my ISA account with HSBC or with Barclays.
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Interest rate risk is the risk from a varying interest rates on a bond. As rates rise, the price of a bond will fall. If rates fall, the price of a bond rises.
Reinvestment rate risk is the risk of reinvesting the coupon payments from a bond at a lower interest rate. This risk is most pronounced during periods of falling interest rates. In this case, the coupon payments will be re-invested at less than the yield of maturity at the time of purchase
One way to minimize both is to buy zero coupon bonds that have a maturity date of your time horizon. So, if you have 5 years to invest, you buy a 5 year zero coupon bond. By doing this you are exposed to interest rate risk because you will receive a payment that is equal to the face value of the bond. Additionally, since there are no coupon payments from the bond, you have no reinvestment rate risk.
Reinvestment Rate
Reinvestment Risk
If you are referring to different banks ISAs, their interest rates are all competitive. There is no reinvestment rate risk or ISA risks for savers.All savers ISAs are guaranteed by their banks and you can withdraw your money on demand if you needed it at a moments notice.Personally, I prefer to have my ISA account with HSBC or with Barclays.
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