The ‘conditions for cashing out’ you should check before preparing for education expenses with bonds
It is nice when deposit interest rates rise. However, the same interest rate increase can sometimes lead to a decline in bond prices.
Why does the result become the opposite even though the interest rate increase is the same?
If you are considering bonds because you don’t want to reduce your education funds and think they have smaller price fluctuations than stocks, you might be a bit confused.
When interest rates rise, the selling price of fixed-rate bonds you already hold generally falls. Therefore, when considering which product to use to prepare for education expenses, it is important to check not only the yield but also ‘how much you can cash out the product for by the day you need to use the education funds’.
This is not to say that bonds are dangerous and should be avoided. If you understand what declines in value and in what situations it affects your payments, your way of choosing will change.
Table of Contents
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What falls due to interest rate hikes is the selling price of fixed-rate bonds you hold
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For government bonds, the method of cashing out before maturity differs depending on the product
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Bond funds are not products where the purchase amount is returned at the maturity of the bonds held within them
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If you are investing for education expenses, check the payment date before the yield
What falls due to interest rate hikes is the selling price of fixed-rate bonds you hold
Fixed-rate bonds are bonds where interest is paid at a predetermined rate. Even if market interest rates rise, the interest received from those bonds does not automatically increase.
Now, let’s put ourselves in the shoes of someone who is about to buy. If the bonds have similar creditworthiness and remaining duration, wouldn’t you want to choose the one that allows you to pay the same amount and receive more interest?
When the conditions for newly purchased bonds improve, older bonds with lower interest rates become harder to choose at their original prices. As a result, the trading price falls, and the relationship is such that the yield for those who buy them cheaply increases.
The article ‘What is the relationship between long-term interest rates and government bonds? Explaining the impact of interest rate fluctuations on asset management’ published by Mitsubishi UFJ Bank’s Money Canvas on October 13, 2026, also explains the relationship where government bond prices and long-term interest rates move in opposite directions. [1] You can also confirm in the Ministry of Finance’s explanation of new over-the-counter government bonds that market prices may fall due to interest rate hikes after purchase, resulting in losses if sold before maturity. [2]
The yield referred to here is the interest relative to the purchase price and the profit or loss until maturity, viewed as an annual percentage.
Let’s look at a specific example using 3 million yen considered for education expenses. The following is not an actual performance record of government bonds, but a hypothetical case to understand the mechanism.
Consider a fixed-rate bond with 5 years remaining until maturity that pays 1% interest per year. If the market-required annual yield rises from 1% to 2% while the interest received and the maturity repayment amount remain unchanged, the theoretical trading price changes as follows.
Comparison of trading prices for the same bond at that point (hypothetical case)
Item Amount Theoretical price before interest rate hike 3 million yen Theoretical price after interest rate hike approx. 2.858 million yen Price difference approx. 142,000 yen decline
The calculation was produced on October 16, 2026. The 1% and 2% annual rates are assumptions for explanation and are not current offering rates or future forecasts. This is based on a yen-denominated face value of 3 million yen, 5 years remaining, interest received every six months, and compared at the same point immediately after interest payment. Taxes and trading fees are excluded, and figures are rounded to the first decimal place in ten-thousand-yen units.
This does not assume that the government has stopped repayment. Even if the interest and principal payment conditions are the same, the price at which it is sold midway changes. This is not an investment performance including interest, but a comparison of only the selling price at that time. The magnitude of the price decline depends on the remaining period of the bond, the interest rate, etc.
If you plan to use the proceeds from the sale of this bond to pay for education expenses, the price difference of approximately 142,000 yen will be the difference in the money you can have available on that day. On the other hand, if you can hold it until maturity and it is paid as promised, the repayment of the principal is based on the face value in the contract.
‘The price at which it is sold midway’ and ‘the face value returned at maturity’ are figures that should be viewed separately. Face value is the base amount of the principal repaid at maturity. If you bought it in the market for more than the face value, the repayment amount at maturity will not match the purchase amount.
For government bonds, the method of cashing out before maturity differs depending on the product
If you are thinking of preparing for education expenses with government bonds, checking the specific product name will reveal the differences in how to cash out before maturity.
‘Government bonds bought by individuals’ and ‘government bonds for individuals’ as a product do not mean the same thing. Even as an individual, you can buy regular government bonds that are traded at market prices. For example, ‘New Window-Sold Government Bonds’ have a mechanism where you sell at market price when converting back to cash before maturity. The price decline due to interest rates mentioned earlier is the case when considering such fixed-rate bonds. [2]
On the other hand, products named ‘Government Bonds for Individuals’ have a mechanism for early redemption by the government. Unlike regular government bonds, the market selling price is not necessarily the redemption amount. [3]
However, there are conditions here as well. In principle, government bonds for individuals cannot be redeemed early until one year has passed since issuance. At the time of redemption, an adjustment amount based on the interest for the two most recent periods will be deducted. There are exceptions where redemption is possible within one year in the event of the holder’s death or certain large-scale disasters. [4]
In other words, ‘the price of the principal portion does not change’ and ‘you can withdraw freely at any time while receiving the full amount of interest’ are different things. When checking the amount received, confirm the transfer amount at the time of redemption and the interest already received separately.
If you intend to prepare for entrance fees to be paid next spring with government bonds for individuals issued from now on, you need to check whether the one-year redemption restriction in principle will be in time for the payment date. Even if a product seems safe, if you cannot use it on your payment date, you will have to prepare other funds.
This is not a comparison to decide which government bond is superior for everyone. It means that the conditions you prioritize change depending on whether you can hold it until maturity or whether there is a possibility of using it midway.
Bond funds are not products where the purchase amount is returned at the maturity of the bonds held in the portfolio
When buying a bond fund, the way money is returned differs from choosing a single government bond and holding it until maturity.
A bond fund is an investment trust that invests in bonds and other assets with money collected from investors. The price movements of the bonds held are reflected in the fund’s net asset value, which is the price of the investment trust.
In fact, checking the public documents for Nissay Asset Management’s ‘Nissay Domestic Bond Index Fund
Here, do not think that ‘because the bonds held by the fund have a maturity date, my purchase amount will return if I wait’.
Some bond funds operate by replacing the bonds they hold. The maturity of individual bonds is not the same as the return of the purchase amount to the investor. Even for funds with a fixed trust period, the purchase amount is not guaranteed at that expiration date.
On the other hand, when interest rates rise, there is also the expectation that interest income from bonds newly invested in by the fund will improve. You do not need to judge whether something is good or bad based solely on the aspect of price decline. However, there is no guarantee when or by how much the price will recover.
Consider whether you can prepare the necessary amount without assuming that the price will recover from a decline by the payment date for education expenses. That is a perspective you want to value for money with a specific purpose.
If you are investing for education expenses, check the payment date before the yield
When deciding which product to use to prepare for education expenses, check not only ‘how much it might grow,’ but also whether you can withdraw the money on the necessary date.
Entrance fees and tuition have payment deadlines. Even if you want to wait for the market to recover, you cannot always freely extend the household’s schedule.
If you are thinking about your own situation, here are three things you should check.
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When will you use the education funds? Is the maturity or cash-out period of the chosen product before the payment date for those education expenses?
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When selling or cashing out bonds or investment trusts before maturity, what determines the amount received? Is it the market price or a product-specific mid-term redemption system?
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After applying for a sale or mid-term redemption, when will the money be deposited into your bank account? Can you prepare the amount needed for education expenses even after deducting fees and interest adjustments?
The day you apply for a sale or redemption is not necessarily the same as the day you can use the money in your bank account. Regarding Japanese Government Bonds for individuals, the Ministry of Finance states that it takes approximately 3 business days including the application date for redemption, but since this varies depending on timing and other factors, you must check with the handling financial institution.[4]
Financial products and deposit methods that suit your purpose differ between funds that have a sufficient period before education expenses are used and money needed for an upcoming payment date. If you don’t group everything under the name ‘education expenses’ but instead think about them by the time they will be used, such as the portion paid at enrollment or the portion paid during school, it becomes easier to organize your options.
You do not need to sell the bonds or funds you currently hold immediately after reading this article. It is enough to start by confirming whether the purpose and the product conditions match.
Today’s first step is to list the ‘scheduled payment time’ and the ‘name of the product where the education funds are deposited or invested’ in your education expense notes. Once you know the product name, try comparing it with the redemption conditions in the product description.
When I invest for education expenses, I value being able to support my family’s choices on the necessary day just as much as the possibility of growth.
When choosing bonds, check not only the interest you will receive but also how you can cash them out on the day you use the education expenses. It is good to have both efforts to grow your money and preparations to use it as planned.
For those who want to connect interest rate news to their own or their family’s financial decisions. In the free LINE open chat ‘Become stronger at economics in 3 minutes a day | Money Learning Club,’ we share economic news, finance, and asset formation in a way that is easy for beginners to understand. Why not acquire the ability to think from mechanisms and conditions, rather than judging only by product names, little by little every day?
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Reference Materials
All confirmed as of October 16, 2026. Corresponds to the numbers in the text.
[1] MUFG Bank Money Canvas “What is the relationship between long-term interest rates and government bonds? Explaining the impact of interest rate fluctuations on asset management” Published: October 13, 2026
https://moneycanvas.bk.mufg.jp/know/column/9Rrds6pedUWzULi/
[2] Ministry of Finance “New Over-the-Counter Government Bonds Top Page” Specifically regarding product characteristics, market value during interest rate fluctuations, and explanations of pre-maturity sales. Publication/update date of the page could not be confirmed.
https://www.mof.go.jp/jgbs/individual/kojinmuke/shinmadohan/
[3] Ministry of Finance “Individual Government Bond Product Overview” Product characteristics and mid-term redemption conditions. Publication/update date of the page could not be confirmed.
https://www.mof.go.jp/jgbs/individual/kojinmuke/main/outline/
[4] Ministry of Finance “Frequently Asked Questions about Mid-term Redemption of Individual Government Bonds” Redemption timing, exceptions, adjustment amounts, and deposit timing. Publication/update date of the page could not be confirmed.
https://www.mof.go.jp/jgbs/individual/kojinmuke/main/qa/answer_qd.html
[5] Nissay Asset Management “Nissay Domestic Bond Index Fund
https://www.nam.co.jp/fundinfo/nksif/main.html
[6] Nissay Asset Management “Nissay Domestic Bond Index Fund
https://www.nam.co.jp/fundinfo/nksif/risk.html
Disclaimer
This article provides information for general financial education purposes. It does not uniformly recommend the purchase or sale of specific products or methods for managing education expenses. The assumed cases do not guarantee future prices or investment results. For actual decisions, please check the latest product descriptions, costs, taxes, redemption/deposit conditions, and your family’s financial plan.