what is a reinvestment rate 
the reinvestment rate is the amount of interest that can be earned when money is taken out of one fixed income investment and put into another for example the reinvestment rate is the amount of interest the investor could earn if he purchased a new bond while holding a callable bond called due because of an interest rate decline reinvestment rates are of particular concern to risk averse investors who invest in treasury bills t bills treasury bonds t bonds municipal bonds certificates of deposit cds preferred stocks with a stated dividend rate and other fixed income investments these investors who are often retirees or close to retirement rely on the steady income provided by their investments while reinvesting in fixed income securities is a common retirement portfolio strategy it does have risks such as interest rate risk understanding reinvestment ratethe reinvestment rate is the return an investor expects to receive after reinvesting the cash flows from an investment the return is expressed as a percentage and represents the anticipated profit the investor expects to make on the reinvestment of their money for example take an investor who has purchased a 5 year cd with an interest rate of 2 at the end of the term the investor can reinvest their money in another cd at the going interest rate they can take the cash without reinvesting or they can reinvest in another kind of investment if they choose to reinvest in a bond offering a 3 5 yield then their reinvestment rate is 3 5 reinvestment and interest rate riskanticipated reinvestment rates play a role in an investor s decisions about what term to select when purchasing a bond or certificate of deposit cd an investor who expects interest rates to rise might select a shorter term investment under the assumption the reinvestment rate when the bond or cd matures will be higher than the interest rates that can be locked for longer maturity investments 