Senior debt has the highest priority and, therefore, the lowest risk. Thus, this type of debt typically carries or offers lower interest rates. Meanwhile, subordinated debt carries higher interest rates given its lower priority during payback.

Banks typically fund senior debt. Banks assume lower-risk senior status in the repayment order because they can afford to accept a lower rate given their low-cost sources of funding from deposit and savings accounts. In addition, regulators advocate for banks to maintain a lower-risk loan portfolio.
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What is the seniority of bank debt?
Senior Debt: What It Is, Why It's Less Risky
Senior debt is debt and obligations which are prioritized for repayment in the case of bankruptcy. Senior debt has the highest priority and therefore the lowest risk. Thus, this type of debt typically carries or offers lower interest rates

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Subordinated debt (also known as a subordinated debenture) is an unsecured loan or bond that ranks below other, more senior loans or securities with respect to claims on assets or earnings. Subordinated debentures are thus also known as junior securities. In the case of borrower default, creditors who own subordinated debt will not be paid out until after senior bondholders are paid in full.
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