Prime Interest Rate Increased to 8.5 Percent
Effective July 26, 2023, the prime interest rate increased from 8.25 percent to 8.50 percent. The prime interest rate is largely determined by the federal funds rate, as set by the Federal Reserve’s Federal Open Market Committee (FOMC). As Department of Labor regulations require a retirement plan loan interest rate to be comparable to interest rates charged by entities that are in the business of lending money in similar circumstances, plan sponsors typically use a benchmark such as the prime rate to set the interest rate on plan loans. As a reminder, for a participant who is on active duty in the uniformed services, the Servicemembers Civil Relief Act of 2003 prescribes an interest rate limitation of 6.00 percent for loans that were secured before the military service period started.
The next FOMC meeting is scheduled for September 20, 2023.