The Federal Reserve announced on Dec. 16 that it is raising its benchmark interest rates by a quarter of a percentage point after nearly a decade of keeping interest rates close to zero, with similar increases expected in the coming quarters. For 401(k) plan sponsors and participants, rising rates will bring advantages and some disadvantages, at least in the near term.
Rate hikes bring higher returns paid on savings. For many, that’s good news: Average five-year certificates of deposit have paid less than 1 percent interest since September 2012, according to financial research firm Bankrate. That’s been hard for retired Americans living on fixed incomes and others who rely on interest income to help cover their living expenses.
