After doing a few squadron topics about finance, I’ve been labeled as the “go-to guy” for money matters on my current deployment.  During a previous Commander’s Call, our First Sergeant brought up the Savings Deposit Program (SDP) and how great of a program it is for saving.  Naturally, I had a few people pull me aside with questions regarding the program and how good is it – REALLY?  

On my first deployment, as soon as I heard of this SDP and its guaranteed 10% interest, my eyes lit up and I maxed it out as soon as I can.  However, these days I am a little wiser and also slightly more critical of the program.  So when I was faced with questions on the SDP and its wonderful “cure all” sales pitch, my answer to the question of its worthiness is –

It depends.

“What?  Depends!?  It’s free money!”

Well, not so fast.  Let’s go over some of the basic rules and issues that one runs into while talking about the SDP.  Now let me preface this that the below are straight FACTS and both the TSP and the SDP serve two completely different purposes.

1. While you can deposit $10,000, you cannot deposit it at once to take full advantage of the 10%

Of course the 10% on the $10,000 figure is THE selling point of the program.  Our mind has evolved to fill in the blank where given the figures above, we will get a FREE $1,000 out of the deal.  If that was the case, I would be the biggest proponent of the measure!  Unfortunately, it is not so.  Your “Deposits may not be more than the amount defined as un-allotted current pay and allowances in subparagraph 510201.B.” (1) This means that it will take you months to get to the $10,000 limit.  Additionally, you have to wait until the 31st day in a combat zone prior to making contributions.  So not only are you already behind the curve from not being able to put in a cool $10,000, but you are also 31 days behind in your 10% interest (in reality – 2.5% compounded quarterly averaged over your 3 month balance – i.e. if you put in 5000 every month, it would be an average of (5000+10000+10000)/3 x 0.025, or $208.33 in interest instead of 250 during your first 3 months) and you are only able to keep the SDP open (while it still gathers the interest) for 90 days after your return from the deployment.  Of course there are many people in finance positions that do not know the regulation (or just do not care) and will allow an immediate deposit making it more worthwhile if it’s your emergency fund.  In my personal experience however, that has not been allowed in either of my deployments.

***IMPORTANT NOTE***

Some deployed finance offices will allow you to put in $10,000 immediately.  At times this will also require a letter from your squadron commander.  If you are in a lucky position that allows this, do not hesitate to put the money in immediately if you have it sitting around in a plain checking/savings account.

2. You’re letting finance “control” your money.

How many times do we hear news of finance screwing up our pay?  It has happened to me just about every year that I have been in.  From computer, to personnel errors, I have had my money tied up for months before seeing it back in my accounts to swift withdrawals that a couple of times –  I was not even made aware of!  Doing some extra research on the SDP, I have found multiple people claim that they were thankful they kept their receipts because finance would lose records of the deposits those people made and had general issues with deposits and vouchers.  The majority of folks will not have these issues, but it is still an extra headache/risk.  Of course if you have various allotments set up, that may cause more headaches – especially if you are trying to max it out ASAP as you will not be able to put in 100% of your entire pay until the allotments have full stopped.

3. Math section!

I will attempt some napkin math here for the TSP vs SDP discussion for someone that is able to save $4,500 and someone that can only save $3,500.  

For the sake of simplicity, let’s say that in lieu of the TSP, I want to max out my SDP first and use my current figures.  Base pay + BAS + BAH + HDP + HFP/IDP + Fam Sep + COLA = 6562.48.  However, we have to deduct everything else we have going on such as Soc Security/Medicare and I get a total of 6309… since we are overseas and need to keep paying for rent as well as some additional bills we have (her food, cell phone, gas, etc), I will say I am able to save roughly 4500/mo after my family NEEDS are met.  I will also do a calculation for 3500/mo.

* Let me jump in here and say that in reality, I am nowhere close to these numbers during my current deployment.  Unfortunately we had to pay for my wife to fly back to the US and back, and after other family emergencies along with additional random expenses, we could not hit the savings target we aspired for.  However, if you are trying to be a great military saver and are strictly focusing on maximizing these avenues out, I believe these numbers are a good starting point.  

So back on track, we will deposit 100% of my base pay into my TSP (I’m a 6 year SSgt/E-5 – 2856.60). The other (4500-2856)=$1644 left over will go towards mine and my wife’s Roth IRAs for extra tax benefits and over 7 months will both be maxed out.  At month 8, I will drop the TSP to my current TSP contribution number of 30%, or 856.98 as this is the time I would be returning home.  

For the SDP side, we will assume a deposit of 100% of 4500 into the SDP to get the most out of the 10% yield.  Once the SDP is maxed, we will go with the above of throwing in the money into the TSP.  At the 9 month mark, we will take out the 10750 in the SDP and add it with all other contributions for monthly growth noted below.  I did NOT calculate taxes in this, but after reading the above taxes section you should be aware that you are losing a significant chunk of change with this money not being in a tax-advantaged account.

I will use a standard 7% annual interest for the TSPs calculation (or .58333% monthly) and a 10% (or 2.5% interest every 3 months) for the SDP calculation.  As the interest in the SDP is accrued based on the average amount over the quarter, the first period will not be a flat 250, even if you did max it to 10k in time.  I will also use a standard 180 day deployment for the USAF so you have your 6 months of SDP interest in theater, and then the additional 90 days once you get home:

4500/mo	Month 1	Month 2	Month 3	Month 4	Month 5	Month 6
TSP/IRA	4500*1.00583333 4526.25	(m1+4500)*1…= 9078.90	(m2+4500)*1…= 13658.11	(m3+4…)*1…= 18264.03	(m4+4…)*1…= 22896.82	(m5+4…)*1…= 27556.63
SDP	4500	9000	10k+(23500/3)*.025 10195.83	10195.83	10195.83	10000*1.025+250 10445.83
SDP + TSP/IRA after	4500	9000	SDP+(3500)*1.. 13716.25	SDP+(3520.42+4500)*1.. 18262.83	SD+(m4-10195.83 +4500)*1… 22836.35	SD+(m5-10195.83 +4500)*1… 27686.16

4500 cont	Month 7	Month 8	Month 9	Month 10	Month 11	Month 12
TSP/IRA	(m6+4…)*1…= 32330.18	(m7+856.98)*1…= 33380.75	(m8+8…)*1…= 34437.45	35500.31	36569.37	37644.67
SDP	10445.83	10445.83	10695.83	10695.83	10695.83	10695.83
SDP + TSP/IRA after	SDP+(m6-10445.83 +4500)*1… 32312.98	SDP+(m7-10445.83+856.98)*1… 33302.52	SDP+(m8-10445.83+856.98)*1.. 34547.83	SDP+(m9-10695.83+856.98)*1… 35548.95	SDP+(m10-10695.83+856.98)*1… 36555.90	SDP+(m11-10695.83+856.98)*1 37568.73

3500/mo	M1	M2	M3	M4	M5	M6
TSP/IRA	3500*1.00583333 3520.42	(m1+3500)*1…= 7061.37	(m2+3500)*1…= 10622.98	(m3+3500)*1…= 14205.36	(m4+3500)*1…= 17808.64	(m5+3500)*1…= 21432.94
SDP	3500	7000	10k+(25000/3)*.025 10170.83	10170.83	10170.83	10420.83
SDP+TSP/IRA after	3500	7000	SDP+(500)*1.0058333 10673.75	SDP+(502.92+3500)*1.. 14197.10	SD+(m4-10170.83 +3500)*1… 17741.00	SD+(m5-10170.83 +3500)*1… 21555.58

3500 cont	M7	M8	M9	M10	M11	M12
TSP/IRA	(m6+3500)*1…= 25078.38	(m7+856.98)*1…= 26086.65	(m8+8…)*1…= 27100.80	(m9+8…)*1…= 28120.87	(m10+8…)*1…= 29146.89	(m11+8…)*1…= 30178.89
SDP	10420.83	10420.83	10670.83	10670.83	10670.83	10670.83
SDP+TSP/IRA after	SD+(m6-10420.83 +3500)*1… 25140.95	SD+(m7-10420.83 +856.98)*1… 26088.80	SD+(m8-10420.83 +856.98)*1… 27292.18	SD+(m9-10670.83 +856.98)*1… 28251.12	SD+(m10-10670.83 +856.98)*1… 29215.65	SD+(m11-10670.83 +856.98)*1… 30185.81

So as you can see above, there is some difference between the two different sums of money.  With the $4,500, the TSP comes out ahead overall due to the higher amount being put into the TSP to compound monthly.  With $3,500, since you still max out the 10k in the first 3 months and the TSP gets a little less to compound, it comes just slightly behind.  Nevertheless, due to the taxes reasons below, I would still 100% advocate for the TSP over the SDP.

4. TAXES

Although your income in a combat zone (and even some non-combat zones) will be tax-free, the interest you earn in the SDP IS taxable.  This is honestly the biggest reason for me.  Even though the numbers are VERY close (as you will see in the “napkin math” I provided below), after you take the tax out for the 750 gain and future tax implications, it doesn’t make as much sense to do the SDP over the TSP.  Additionally, as I am saving for early retirement through various investments, I want to have as much money as I can in tax-advantaged accounts where I will not have to pay taxes on it later.  

If you use the calculator the smart folks made at CalcXML (https://www.calcxml.com/calculators/inv07) and plug in $10,000 with a 7% yearly yield compounding monthly over 10 years (let’s say this is when we’ll retire from the military and start withdrawing our TSP then – more talks about early withdrawal techniques to come!) while somehow able to stay at the marginal tax rate of 15%, the difference between taxable vs tax-advantaged savings are almost $2,000!  At 20 years, that difference is nearly $7,500.  If you bring your marginal tax bracket to 25%, the difference is even higher at $11,639.

5. Final verdict

As you can see from the math above, the TSP is a much better place to park your money when you account for the tax free growth no matter the circumstance.  However, I will concede that if you are in a position where you need to start your emergency fund or have to spend that money on an upcoming purchase (i.e. home downpayment or any kind of big purchase), the SDP is still better than a checking/savings account and far safer than putting it in a market where you might lose money short term.  Ultimately, you know your position and priorities best, but hopefully this article has shown you enough to let you make a more informed decision.

References: (1) DoD 7000-14-R (Para 510205 A)