Even the best savings account rate today is pretty paltry when compared to rates from several years ago. While there are a number of benefits to depositing in a savings account that extend beyond earning interest, it’s hard not to let out a sigh of disappointment when reviewing your bank statements.
But what if there was a way to earn a guaranteed 10% on your savings, and with out exposing your money to any risk? There is, but you must literally risk your life to open an account. It’s called the military Savings Deposit Program, and it’s only available to servicemembers in designated combat zones.
Military Savings Deposit Program (SDP) Basics
Run by the U.S. Department of Defense, sevicemembers can get their hands on a juicy return by meeting a long list of requirements. According to the DoD website, you may qualify for the Savings Deposit Program (and 10% APY) if you:
- Have been deployed in an SDP-eligible combat zone for 30 consecutive days, or at least one day in each of three consecutive months
- Are receiving hostile fire pay
Account holders are allowed to deposit up to $10,000 per deployment, though monthly contributions are limited to your maximum base pay. Contributions earn interest at the 10% rate, which is compounded quarterly. Note also that you are allowed to deposit more than $10,000, but the extra funds won’t earn any interest.
The account remains open as long as you’re still serving in the combat zone, during which withdrawals are prohibited, except in the case of proven hardship or contributions in excess of $10,000. After you’ve left combat and returned home, your deposit can continue to earn interest for an additional three months. Once the account is closed, funds will be returned to you within 120 days.
Obviously, a 10% return is hard to beat. Most deposit account options don’t offers anything even near that pall bark, and the SDP provides about ten times the return on even the best savings account rates of about 1%. Plus, you can receive an a additional 90 days’ interest once returning home from combat.
However, despite these obvious positives, there are a handful of drawbacks to the Savings Deposit Program that may cause you to think twice about participating.
Drawbacks of the Savings Deposit Program
Capped at $10,000.
Because the total contribution is capped at $10,000, and monthly contributions are capped at maximum base pay, total earnings in the account will never exceed $1,000 — and likely never come close to that number.
Slow and subject to error.
As Hank Coleman points out on MilitaryMoneyMight.com, the military’s bloated and complicated finance system means deposits are easily lost — even entire paychecks can be delayed when SDP account holders makes changes to their allotments. He states, “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!”
Combat pay isn’t taxable, but any interest earned is taxed as income. So perhaps that 10% APY is quite accurate after all.
If you want to remove money from this account while deployed, you have to petition for a hardship withdrawal. Otherwise, the funds you deposit are tied up until you come home.
You have to, you know, risk your life.
For members of the military who are fighting in combat zones and have plenty saved in an emergency fund, the Savings Deposit Program is a nice way to add a little extra to their savings. Despite the drawbacks to this savings option, it’s hard to argue against 10% interest — but I certainly wouldn’t risk my life just to get it.