Special Savings Plans for the Military

The DOD Savings Deposit Program (SDP) is a special savings program designed for military members who serve in designated combat zones. This savings program is one of several benefits that the federal government offers to service members to help them further their financial goals. These special savings plans have specific guidelines for making contributions and withdrawals, as well as rules for who can contribute to them.

Understanding the Savings Deposit Program (SDP)

The SDP is offered by the U.S. Department of Defense (DOD) to members of the uniformed services. The program has one primary goal: to help eligible members of the military build their financial savings.

Service members can contribute to an SDP account if they:

• Are serving in an SDP-eligible combat zone
• Have been deployed a minimum of 30 consecutive days or at least one day in each of three consecutive months
• Are receiving Hostile Fire Pay

Military members who are eligible to contribute to one of these accounts can do so through any military finance officer in theater.

SDP Deposits and Withdrawals

Special savings plans have certain guidelines regarding contributions and withdrawals. Military members who open one of these accounts can deposit up to $10,000 total. Contributions can be made by cash, check, or through allotment. Allotments can increase or decrease as the service member’s financial situation changes, and these deposits cease once they leave the combat zone.

Here’s why you would want to participate in this plan: SDP accounts earn interest at a flat rate of 10% annually, putting them well above the typical interest rates associated with not only traditional savings accounts but also high-yield savings accounts.

DOD rules require SDP accounts to be closed and all monies returned to service members via direct deposit 120 days after leaving the combat zone. However, it’s possible to withdraw money from a special savings plan before leaving a combat zone.

Early withdrawals are allowed under the following circumstances:

• Account balance reaches $10,000. If this happens, you can withdraw amounts over $10,000 on a quarterly basis.
• Emergencies. Emergency withdrawals are allowed if they’re approved by your commanding officer and are deemed necessary for the health and welfare of you or your family.

If you’re within the 120-day window after leaving a combat zone, you can also request an early withdrawal. You can make this request automatically through your online myPay account or by email, fax, or regular mail. Requests must be directed to the Defense Finance and Accounting Service, located in Cleveland.

Balances are returned by direct deposit unless you request a paper check instead. If you choose direct deposit, you’ll need to provide the name, routing number, and account number of your bank. If you choose a paper check, you’ll need to tell the Defense Finance and Accounting Service which mailing address to send it to.

Other Military Savings Options

The SDP is a special savings option for military members who are deployed in combat zones. But it’s not the only way to save money if you’re serving in the military. Other ways to save while in the military include:

• Military retirement benefits
• Thrift Savings Plan (TSP)
• Military savings accounts at banks and credit unions

Here’s a closer look at how each of these military savings options works.

Military retirement plans

Military personnel can take advantage of retirement benefits through the Legacy Retirement System or the Blended Retirement System, depending on when they enlisted. Service members who enlisted before Dec. 31, 2017, are covered by the Legacy Retirement System, while those who joined military service on or after Jan. 1, 2018, are automatically covered by the Blended Retirement System.

The Legacy Retirement System is a defined benefit plan. If you serve 20 years or more and are covered by this plan, you’ll receive a lifetime monthly annuity at retirement. Annuity benefit amounts are based on the number of years of service and the average of the highest 36 months of basic pay.

The Blended Retirement System is a combination of a defined benefit plan and a defined contribution plan. The defined contribution plan portion of the Blended Retirement System allows military members to participate in the Thrift Savings Plan.

Thrift Savings Plan (TSP)

The Thrift Savings Plan (TSP) is a defined contribution plan that functions like a 401(k). Military members can choose a traditional TSP or a Roth TSP and make contributions at a minimum rate of 1% of base pay. Traditional TSP contributions are made on a pretax basis, while Roth TSP contributions are made using after-tax dollars.

The Internal Revenue Service (IRS) limits how much you can contribute to a TSP. For 2021, the annual contribution limit is set at $19,500 for elective deferrals (rising to $20,500 for 2022). A catch-up contribution of $6,500 is allowed for military members ages 50 and older for both 2021 and 2022.

Military savings accounts at banks and credit unions

In addition to the SDP, military members can open savings accounts at banks and credit unions. Many financial institutions offer savings accounts and other deposit accounts specifically for military members and their families. These military banks may offer accounts with enhanced benefits, such as fee waivers or a higher annual percentage yield (APY) for military savers.

In addition to savings accounts, military banks and other banks that offer accounts to military members may also offer additional benefits. These can include fee-free checking accounts or discounted interest rates for loans.

The Bottom Line

The Savings Deposit Program can make it easier for military members who are serving in eligible combat zones to save some or all of their base pay while taking advantage of a highly competitive interest rate. If you’re not serving in a combat zone, then you won’t be able to contribute to one of these special savings plans. But there are other ways to grow your savings as a member of the military, including military savings accounts at Navy Federal Credit Union, as well as at other credit unions and banks. If you’re considering these accounts, remember to shop around to find the best combination of the highest possible interest rates and lowest fees.