What would you say to a guaranteed 10 percent annual rate of return on your investment backed by the full faith and credit of the United States government? It sounds too good to be true, but the Savings Deposit Program is a great program that is offered to the men and women who are fighting for freedom overseas in a combat zone.
This is a program that does not receive much attention and fanfare by Soldiers, Sailors, Airmen and Marines, which is a shame since so few investments these days return 10 percent, let alone guarantee it.
Who Is Eligible to Contribute to the Savings Deposit Program?
Military members who are deployed in combat zones, qualified hazardous duty areas, or certain contingency operations are eligible to deposit all or part of their basic pay that is not earmarked for allotments into a Department of Defense savings account up to $10,000 during a single deployment. The interest on the account accrues at an annual rate of 10% and compounds quarterly.
How Do You Contribute to the Savings Deposit Program?
Service members may begin making deposits only after being in the combat zone for 31 consecutive days. Active duty members may make deposits by cash, personal check, traveler’s check, money order or allotment. Reserve component members may make deposits by cash, personal check or money order only, options which are not always very easy in a combat zone.
It will also take you a couple of months to build up to the $10,000 level, which will technically cost you some of your 10 percent guaranteed interest rate. A member of the military cannot deposit more than their monthly current net pay and allowances after all deductions and allotment.
Withdrawing your money is just as fun and full of red tape as investing it in the first place. Your investment can be left in your Savings Deposit Program account indefinitely, but your account stops accruing interest 90 days after you return from the combat zone. Also, you can only make withdraws after leaving the combat zone.
Why I Personally Hate the Savings Deposit Program
Let me just start by saying that the Savings Deposit Program is a great program. Its intentions and the intentions of those who created the program are great. But, like most government programs, it is just too much of a pain to start, end, and keep track of your money in the program.
Most Soldiers who are deployed have better things to do and worry about than making a special trip to the local finance office, which is never at an outpost but only located at huge bases. Although federal income earned in hazardous duty zones is tax-free, interest accrued on earnings deposited into the SDP is taxable.
There is just too much red tape with the program, and I hate the Savings Deposit Program and don’t use it. I personally hate when my finance office goes into the computer system to change attributes dealing with my paycheck. It is still too much of a manual system prone to human errors.
A guaranteed 10 percent rate of return on your investment is a great guarantee, but the government is going to make you earn it. They are going to make you jump through hoops to enter the program and to withdraw your money in the end. The government is going to tax it, and eventually your paycheck could have an error in it. All in the name of an excellent guaranteed rate of return. There are many benefits and pitfalls that should be weighed when participating in the Savings Deposit Program.
Hank Coleman is a Captain in the U.S. Army, freelance writer, and the founder of personal finance sites such as Military Money Might. His writing has been featured on The Motley Fool, Military.com, and many others. You can follow him on Twitter at @HankColeman.