Savings Deposit Program: Is 10% Interest Good Enough?

Warning Order

A continuing fact of life for many military service members is regular deployments, both combat and non-combat.  The Savings Deposit Program (SDP) is a program run by DFAS that allows service members to earn a 10% interest rate on funds deposited into the account.  Service members who deploy to designated combat zones and hazardous duty areas generally qualify to use SDP, provided they are in that area for at least 30 days.  $10,000 is the maximum deposit allowed during any single deployment, and deposits will earn 10% annual interest.  I encourage service members to take maximum advantage of this program throughout their careers.

Situation

A continuing fact of life for many military service members is regular deployments, both combat and non-combat.  I remember sitting through a detailed briefing a few years ago on the Army Aviation Restructuring Initiative (ARI).  As unpopular as that plan was and still is, one of the most important takeaways for me was that all Army Aviation units, both active and national guard, were committed to regular deployments over the next decade, such was the demand for aviation support.  Deployments come with several financial benefits.  In this post, I will explain one of those benefits, the Savings Deposit Program, how to take advantage of the program, and who should use it.

What is SDP?

The Savings Deposit Program (SDP) is a program run by DFAS that allows service members to earn a 10% interest rate on funds deposited into the account.  Yes, you read that right, 10%.  If you can find me another savings option that provides 10% interest backed by Uncle Sam, please tell me so I can direct my clients to it!  Use of SDP has limitations, though.  SDP has limitations on deposits and locations; not all overseas deployments qualify a service member to use SDP.

Who Qualifies for SDP?

Service members who deploy to designated combat zones and hazardous duty areas generally qualify to use SDP, provided they are in that area for at least 30 days.  Since status can change depending on the location and time of deployment, service members must clarify qualification through their installation finance office.  Service members can make their first deposit at any military finance office in theater once they have been in their deployed location for 30 days.  Those who plan to use SDP should ask before deployment, however, about access to a military finance office.  For those whose units deploy to smaller bases, access may be limited.

What is the maximum deposit?

$10,000 is the maximum deposit during any single deployment, and any deposits up to that amount will earn 10% annual interest.  On a monthly basis, service members may only deposit a maximum of their un-allotted pay.  In other words, if after allotments such as TSP, a service member received $5,000 in pay, then $5,000 is the maximum SDP deposit for that month.  Unfortunately, this means that those with significant savings can’t simply write a $10,000 check to SDP at the start of the deployment.

What are the withdrawal options?

         Any deposits and interest earned in SDP remain in the account until after the service member returns from deployment.  A commanding officer must approve any emergency withdrawals after verifying the withdrawal is essential for the family’s health and welfare.  For those who don’t need the money immediately upon return, SDP deposits will earn interest for up to 90 days following return from deployment.  Service members who do nothing will see the SDP funds returned to their bank account via direct deposit 120 days after return.  Withdrawal requests can be made through the myPay website.

Coordinating Instructions

Is SDP right for you?

The majority of service members should maximize their use of SDP on each eligible deployment.  Yes, one could make the argument that higher returns might be found in Thrift Savings Plan or similar investments, but few should turn down the SDP’s 10% guaranteed interest.  That level of interest is similar to the average stock market returns depending on the timeframe.  With proper planning prior to deployment, service members can set aside savings or adjust their budget to make the maximum SDP deposits until the account reaches $10,000.

Who Shouldn’t Use the SDP?

Two groups of service members should not use SDP.  The first group includes service members whose family budget, even during deployment, does not allow for contributions.  However, deployments usually include tax benefits and additional pay that should let someone in this situation make small SDP deposits each month.  Planning is even more critical in this case.  As a side note, because emergency requests for withdrawals must be approved by a commanding officer, service members who support families (as opposed to single service members) should still hold a small emergency fund outside of SDP.

Those with high-interest debt also should not contribute to SDP.  Any debt with interest exceeding 10%, such as credit cards and some auto loans, should maximize their payments instead of contributing to SDP.  I will even go as far to say that even credit cards with 8% interest or higher should be paid off before contributing to SDP.  The 1-2% interest difference is not enough of a benefit compared to getting rid of credit card debt for good.  Plus, service members still have to make their minimum credit card payments.

Command and Signal

With many service members facing regular deployments throughout their careers, those who are eligible should plan to take advantage of the Savings Deposit Program at each opportunity.  The interest rate provided on deposits by far exceeds any safe savings or investment account offered anywhere else.  Outside of those with high-interest debt or budget challenges, service members should count down the 30 days on deployment to go to their pay office and set up their account.

Other Resources

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