A rule of thumb when it comes to financial planning involves saving for retirement. Whether that be through a 401(k) or Roth plan, contributing monthly to a retirement account is a commonly-touted key to securing a comfortable, financially-independent future.
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But celebrity investor Jim Cramer isn’t always in line with commonly-held investing beliefs. He decided that this month, for the first time in decades, he won’t be making a contribution to his 401(k).
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His reasoning comes down to the Fed rate, which is currently at 5% to 5.25%.
The Fed rate is the interest rate that banks pay each other to borrow or loan money overnight, according to Nerd Wallet. The rate was at 0% for more than a year until March of 2022, when the Fed began increasing rates in an attempt to curtail inflation.
The Fed has been steadily raising rates since then, showing no real sign of stopping.
“I have a 401(k). And every month I put money in because that’s the way I’ve done it since 1982,” Cramer said. “I’m not doing it this month. I keep thinking, what am I doing. 5%? I’ve been dreaming of getting 5% for my cash for ages.”
Fed rate hikes impact more than just the banks — interest rates on loans, including credit cards and mortgages, tend to go up as well, since a higher rate means it’s more costly for the banks to borrow money.
A side-effect of a higher Fed rate, though, can be a higher yield for some savings accounts as banks compete to attract new customers.
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