If you’re a federal employee planning to pay for old service or military time so it counts toward your retirement, the bill is about to grow a little faster.
The Treasury Department has set the interest rate on federal retirement deposits and redeposits at 4.5% for 2027, up from 4.25% in 2026. The same rate applies to payments for military service credit and to Civil Service Retirement System (CSRS) voluntary contribution accounts.
It’s a small change on paper, but for anyone carrying an unpaid balance, interest keeps building every year it sits there. Here’s who it affects and what it means.
What the 4.5% rate applies to
This isn’t a Thrift Savings Plan rate, and it won’t change your TSP returns. It covers three specific situations:
- Deposits for periods when you worked for the government but no retirement contributions were taken out of your pay. Paying the deposit lets that time count fully toward your annuity.
- Redeposits for periods where you left federal service, took a refund of your retirement contributions, and later came back. Paying the money back, with interest, restores credit for that earlier service.
- Military service credit payments, which let you count eligible active-duty military time toward your federal retirement.
The same rate is also paid on CSRS voluntary contribution accounts. These are tax-deferred accounts that let CSRS employees put in extra money to boost their annuity. FERS employees can’t use them.
Why it matters: the longer you wait, the more you pay
Interest on an unpaid deposit or redeposit keeps building each year until you pay it off. A quarter-point rise doesn’t sound like much, but it adds up over time.
Here’s a simple illustration. Say you owe $10,000:
| Interest rate | Interest added over one year |
|---|---|
| 4.25% (2026) | about $425 |
| 4.5% (2027) | about $450 |
That’s only $25 more for a single year, but most people don’t pay these balances off in one go, and the interest compounds. On larger balances, or ones left untouched for several years, the gap gets bigger.
For military time in particular, timing matters. Under the rules for many employees, no interest is charged if the military deposit is paid within a set period after starting a civilian federal job, so paying early can avoid interest altogether. Check with your agency’s HR or benefits office for your exact deadline.
Also coming in January: the retiree COLA
Federal retirees will see their annuities go up in January, based on the same inflation data that set Social Security’s 3.6% increase. But CSRS and FERS retirees don’t get the same raise:
| Year | CSRS COLA | FERS COLA |
|---|---|---|
| 2027 | 3.6% | 2.6% |
| 2026 | 2.8% | 2.0% |
| 2025 | 2.5% | 2.0% |
| 2024 | 3.2% | 2.2% |
| 2023 | 8.7% | 7.7% |
The gap comes from how FERS COLAs are calculated. When inflation is above 3%, FERS retirees get one percentage point less than the full amount. When it’s between 2% and 3%, they get 2%. Only when it’s 2% or lower do they match CSRS.
There’s another difference too. CSRS and CSRS Offset retirees get the COLA no matter how old they are. Most FERS retirees don’t get COLAs until they turn 62. The exceptions are disability retirees and people who retired under the special provisions for law enforcement officers, firefighters and air traffic controllers.
What to do now
- If you have an unpaid deposit or redeposit, ask your agency’s HR or benefits office for an updated balance. Paying it off before the new rate kicks in on January 1, or as soon as you can after, keeps the interest down.
- If you have military service you haven’t bought back, check your deadline for paying it interest-free. Missing it can add years of interest to the bill.
- If you’re a CSRS employee with a voluntary contribution account, the higher rate is good news, since your balance will earn 4.5% in 2027.
- If you’re retired, look out for your new annuity amount in January, and remember the FERS age-62 rule if you retired early.
Rules for deposits, redeposits and military service credit can be complicated and depend on when and how you served. Before you pay, get the exact figures from your agency or the Office of Personnel Management (OPM).
Source: FedWeek, “Retirement-related interest rate set for 2027” (October 20, 2026).
Jackson is a dedicated USA news writer, who covers important topics such as Social Security payment schedules, COLA increases, IRS tax refunds, stimulus payment announcements, Medicare eligibility, retirement benefits, and changes to state driving laws. His goal is to provide clear, informative, and easy-to-follow articles that help retirees, seniors, taxpayers, and American families stay informed.