On Dec. 16, 2015 The Federal Reserve raised the short-term interest rate for the first time since the recession, citing job growth and falling unemployment as two of the reasons for the change. Although the increase was only a quarter of a percentage – to a range of 0.25 to 0.5 percent – the Fed is expected to continue to boost the figure in a similar fashion in the coming quarters. It's important for companies and their human resources teams to make employees aware of this adjustment and the advantages and disadvantages of the change.
Participants in 401(k) programs will witness difference
For many workers – especially those who rely on interest to cover some of their living expenses – the hike will boost the amount of returns paid on savings in their 401(k) programs. The increased interest rate will result in higher contributions from employers. This increase will also be beneficial for employees close to retirement age, as the higher interest rate will improve the amount of savings available to them once they're no longer working, according to The New York Times.
"The Fed's interest rate hike offers both advantages and disadvantages for employees."
While there are some positive outcomes to the Fed raising the interest rate, there are also drawbacks. The alteration helps employees save additional funds, but it also causes them to pay more money themselves. The higher rate requires workers to contribute more to their 401(k) than they have previously, which can be quite a transition for people who had become accustomed to the steady figure in the past.
The Fed's short-term interest rate hike will bring about many changes for employees and their companies. People should consult with their employer to better understand the securities associated with their savings and how the expanded interest rate will affect their company-sponsored savings.
Next steps for HR teams
It's important for HR staff to make workers aware of the Federal Reserve's changes and how they affect the workforce. Blackrock Blog suggested personnel tell employees not to worry about minute hikes on a larger scale. While people may notice higher payments on their end initially, they should also know they're privy to increased yields from current and future savings.
The Fed's interest hike poses a change of pace for HR teams and their employees. The boost offers both advantages and disadvantages to workers, which employers and their HR staff should make people cognizant of.