While the upcoming decrease in the interest rate may seem slight, it can significantly affect the final cost of a service credit. Image: Irina Gutyryak/Shutterstock.com
By: FEDweek StaffThe interest rate charged on payments needed to capture credit for service toward federal retirement benefits in certain situations will decrease in calendar year 2026 to 4.25 percent from this year’s 4.375 percent, the Treasury Department has announced.
The rate applies to deposits and redeposits into the federal employee retirement fund to get credit for service for which no retirement contributions were taken or for which refunds were received at a break in service. It applies as well as for payments to capture credit toward federal retirement for military service time.
The figure also is the interest rate paid on “voluntary contribution” retirement savings program, which allows CSRS (but not FERS) employees to set aside money in tax-deferred accounts that can be withdrawn as a lump-sum or turned into additional annuity payments at retirement.
Small change, potentially big impact
While the upcoming decrease in the interest rate may seem slight, it can significantly affect the final cost of a service credit, particularly for employees with extended breaks in service or those planning to buy back several years of military time. For those who are considering making a deposit or redeposit, it may be financially advantageous to wait until the lower rate takes effect in 2026—however, delaying payment can also delay retirement eligibility or reduce the length of service used in benefit calculations, which can outweigh the interest savings in certain cases.
FERS employees should note that making a deposit for civilian service for which no retirement deductions were paid is often essential to avoid losing all credit for that time in the annuity calculation. Meanwhile, only CSRS and CSRS Offset employees may use the voluntary contribution program, which has unique tax and investment implications.
Employees considering a military deposit, redeposit, or voluntary contribution should consult their agency benefits counselor or a qualified financial advisor.
This small drop in the interest rate can represent a meaningful savings opportunity, but only when it aligns with a broader retirement strategy and timing that supports long-term goals.
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See also,
Calculating Service Credit for Sick Leave At Retirement
FERS Supplement vs The 10% Pension Bonus
How Your FERS, Social Security and TSP Payments Get Taxed
Where Should I Put My TSP in Retirement
