Smart Military Money

The Savings Deposit Program (SDP) was created to provide military members who are deployed to hostile environments with a potentially significant investment opportunity.

Not to be confused with the Thrift Savings Plan, the SDP is an investment opportunity only available to military members serving in hazardous conditions. By designating a percentage of your military paychecks to a savings account each month, the SDP guarantees service members a return of 10 percent, compounded quarterly.

However, before deciding to invest in the SDP, military members should fully comprehend the positive and negative aspects of the program.

How the Savings Deposit Program works

Prior to making any contributions to the Savings Deposit Program, you must establish your eligibility. To be considered eligible, military members must be receiving hostile combat pay for at least 30 consecutive days, or at least one day in three consecutive months.

Once your eligibility has been established you may begin making monthly contributions. Depending on your financial obligations, you can elect to withhold up to 100 percent of your paycheck to the SDP.

Contributions are capped

While you may contribute $10,000 to the program, you are limited to monthly contributions up to the amount of your base pay. Unfortunately, depending on how much you earn, it may take several months to max out your SDP contributions.

However, once contributions are established you will begin earning 10 percent interest, compounded quarterly.

Additionally, withdrawals are prohibited while you’re participating in the Savings Deposit Program, except in cases due to hardship or limited other reasons. Once your eligibility ends, your investment will continue to earn interest for an additional 90 days.

Before you make a decision

There are several disadvantages to consider before investing in the SDP:

• Your contributions are tied up until you return home
• While combat pay is untaxed, interest earned from the SDP is taxable
• If problems arise, the process to alter your contribution amounts may delay your paycheck for several weeks.

Although several unappealing aspects of the program exist, that 10 percent return is a powerful draw for many military members.

 

Photo thanks to alancleaver_2000 under a creative commons license from Flickr.

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