What is the DoD Savings Deposit Program?
In addition to the various other benefits and savings programs that military service members are eligible for while on active duty, the DoD offers a special Savings Deposit Program that works like a high-interest savings account. But instead of offering the low interest rates and fees that a regular bank might impose, the DoD Savings Deposit Program gives you a 10% annual interest rate, compounded quarterly, on up to $10,000 of savings during each deployment.
Why the SDP is an easy yes
Simply put: You can earn a vastly better rate of interest with this savings deposit program than any bank savings account or Certificate of Deposit. For example, as of August 2020, according to the FDIC Opens in new window, the average interest rate on a bank savings account was only 0.06%, and the average interest rate on a 12-month Certificate of Deposit (CD) was only 0.20%. Even 3-month U.S. Treasury bonds Opens in new window – generally considered a safe investment – are only paying around 1.54% interest.
This means that participating in the SDP can give you a return on your savings that is 4.4 times higher than U.S. Treasury bonds, nearly 21 times higher than a 12-month CD, and 125 times higher than an average bank savings account.
How to qualify for the SDP
To open an SDP account, you must be deployed in an SDP-eligible combat zone. You must be receiving Hostile Fire Pay, and you must already have been deployed for 30 consecutive days, or one day in each of three consecutive months.
How to use your SDP account
Open your SDP account by going to a local military finance office in theater where you are deployed. You can make deposits via cash, check, or by allotment, and you can increase or decrease your allotment contributions at any time if your financial situation changes. Your allotments to the SDP account will automatically stop once your deployment to the combat zone is over.
Once your SDP account reaches a balance of $10,000, you can withdraw funds in excess of the $10,000 limit on a quarterly basis.
How the SDP can improve your financial wellness
The Department of Defense started this program as a way to help military service members increase their financial stability. There are a few reasons why service members can benefit from more cash savings:
- Expand your emergency fund — Many military families, just like Americans of all income levels and occupations, could benefit from having a stronger emergency savings fund . Earning a 10% interest rate can be an ideal way to add to your cash savings and to provide financial protection for you and your family in case of a financial emergency.
- Save for as long as you're deployed — One feature of the DoD Savings Deposit Program is that the account cannot be closed until you have left the combat zone – so it kind of “forces" you to keep saving and keep earning interest on the money in the account for as long as you're deployed. This is a good thing — it helps service members stay motivated to keep saving for the future, while letting them put savings on “autopilot" for the duration of deployment.
- Earn interest for 90 days after deployment — After you leave the combat zone, you can leave your money in your SDP account for up to 90 days where it will continue to earn the 10% interest rate. This can be a nice extra “nest egg" to look forward to after your deployment.
Is the interest earned from the DoD Savings Deposit Program tax-free?
Although military service members generally do not owe income tax on combat pay, the money that you earn in the DoD Savings Deposit Program is considered taxable interest income.