(This article originally appeared in the November 2021 issue of Military Officer, a magazine available to all MOAA Premium and Life members. Learn more about the magazine here; learn more about joining MOAA here.)
The Savings Deposit Program (SDP) is a high-interest savings account available to servicemembers who are serving in designated combat zone locations for at least 30 days, or one day of three consecutive months, and receiving hostile fire pay. While the SDP is a great way to earn a little more interest on your savings, there may be better tools to grow your savings depending on your long-term goals.
The benefit of the SDP is the high interest rate. While many personal savings accounts are currently earning a fraction of a percent in interest each year, the SDP earns 10% annually. Eligible servicemembers may deposit up to $10,000 into an SDP, generally through an allotment.
Regular withdrawals are not permitted until after the servicemember leaves the designated area, though funds will continue to earn interest for up to an additional three months. Exceptions may be made for early withdrawal due to emergency situations.
[AT DEFENSE.GOV: Savings Deposit Program]
SDP is a great opportunity to earn extra interest on money that would otherwise be earning a smaller amount of interest in a more traditional type of savings account, such as emergency funds or savings for near-term purchases. However, other options may be more advantageous for mid- and longer-term goals such as purchases further in the future, transition funds, college savings, or retirement.
One alternative is to contribute these same funds into a Thrift Savings Plan account, to grow until retirement. Another option is to put that money into a 529 plan for college savings.
If you have mid-term goals — and the discipline not to touch the money — a taxable brokerage account will allow you to contribute an unlimited amount of money and access it without the restrictions of tax-advantaged retirement and educational savings. It will be taxed at the long-term capital gains rate as long as it is held in the investment for at least a year.
SDP is an amazing way to earn more interest on your savings, but you must be sure it’s the right tool for your big picture, longterm financial plan. If it is, the finance person within your command, unit, or installation can help you set up an account.