What Is a Maturity Risk Premium?

What Is a Maturity Risk Premium?
Fixed-rate securities incorporate a maturity risk premium when setting the interest rate.

Maturity Risk Premium

The maturity risk premium takes the interest rate risk one step further by increasing the market rate for securities with longer terms to account for the risk that the interest rate will increase. This premium is larger in long-term securities than short-term securities. For example, if your certificate of deposit is only a year, the chances that interest rates change drastically isn't as high as the risk on a five-year certificate of deposit, so the five-year CD will have the higher maturity risk premium.