For a bondholder, the risk manifests itself in revaluation: when rates rise, previously issued fixed-coupon securities decline in value, as new issues offer higher returns. The magnitude of the decline increases with longer duration.
There is also the reverse side—reinvestment risk. When rates fall, coupons and returned principal must be reinvested at lower yields, resulting in actual returns below expectations. The same investor faces both risks simultaneously, but in different parts of the portfolio.
For a depositor, the risk manifests differently: a long-term deposit at a fixed rate protects against rate decreases but prevents gains from rate increases, and early withdrawal typically means interest recalculation at a reduced rate.
The risk is managed through maturity management. Reducing duration decreases revaluation risk when rates rise, and spreading investments across different maturities reduces dependence on the timing of placement. For an investor holding securities until maturity, interest rate risk primarily amounts to foregone gains rather than actual losses.