The military’s Savings Deposit Program (SDP) is a financial benefit to troops stationed in a combat zone, hazardous duty area, and a few other qualifying locations around the globe. Members of the military can deposit up to $10,000 and earn a guaranteed 10% APY that accrues quarterly. Sounds like a great deal, right? A guaranteed 10% interest rate in today’s economy is pretty good, but I wouldn’t (and haven’t) touched the program with a ten foot pole. And here’s why…
I do not trust the military finance system. Like most Soldiers, I have been on the receiving end of “No Pay Dues”, and it’s not a pretty sight if you do not have your 3 to 6 month emergency fund in place. To deposit money into the system, you have to begin allotments or submit cash collection vouchers. Then, a person (finance clerk) has to manually put your request into the military’s over bloated, ridiculously complex pay system. I have heard of more Soldiers having pay problems through this program than any other changes they make to their paychecks, withholdings, etc. With a quarter of the military moving and changing BAH rates for example every year, there is a huge opportunity for your paycheck to get messed up. I absolutely hate changing anything with my paycheck for fear that I won’t get paid the next month.
I have so little faith in the military’s finance and pay computer system that I refuse to enter into the SDP despite the guaranteed 10% interest rate. 10% is not enough! Investing is a trade off between risk and return. Classic finance theory states that the riskier the investment is, the more return you should require from it. SDP is very risky to me. I can’t sleep at night worrying that $10,000 of my hard earned COMBAT pay is going to be tied up for months because of computer and human errors. I would rather invest that money in a good, growth mutual fund even if it earned less interest. Members of the military have too much to worry about in Iraq and Afghanistan than whether their investments, paycheck, and household budgets are running amuck.
Another reason that I do not like the program is that it is incredibly illiquid. You cannot withdraw the money anytime you want to. You have to go into the finance office and manually stop the allotment and wait for the military finance office to process your request. I recently had a Soldier who needed to stop the allotment depositing money from his paycheck into his SDP account, but the first month the finance clerk messed up the transaction in the computer, and then the second month my Soldier caught the error after the transaction closing date. So, now he has had three months of additional money withdrawn from his paycheck and deposited into his SDP, which is already maxed out and not earning interest anywhere. See why I love the program?
Another point to consider is the tax implications. Although federal income earned in combat zone is tax-free, interest accrued on earnings deposited into the SDP is actually taxable. Funds can be left in an SDP account indefinitely, but the account will stop accruing interest 90 days after a member returns from war. And withdraws may only be made upon leaving the combat zone.
The entire deposit $10,000 in order to earn $1,000 in interest is also almost a misnomer too. The military has made it very hard to deposit $10,000 to earn your entire $1,000. A service member cannot deposit an amount into the program exceed a service member’s monthly current pay and allowances. It will take most service members months to deposit the entire amount. You also cannot begin contributing to the program until the 31st day you have been in a combat zone. So, you are already loosing a month of interest. The government has to let you leave your money in the SDP after you return home just to get you 12 months of interest after all the hoops they make you jump through.
The military’s entire finance system needs more transparency. Servicemembers need to know right away if there is something wrong with their paychecks, and they need to be able to correct problems right away when they are found. I should not have to hold my breath every two weeks waiting to see if this week is the week where I once again see a “No Pay Due”.
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