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Guaranteed-Interest Accounts for Military Members
If you're deployed in certain combat zones, you can deposit money in an account that earns 10% a year.
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
February 26, 2009
Is it true that members of the military can earn a guaranteed 10% interest per year on their money when deployed? How do they do that?
It certainly is true. Earning 10% per year --guaranteed -- sounds like a scam, but in this case it isn’t. Service members who are deployed in designated combat zones (such as Iraq, Afghanistan and most of the Persian Gulf region) can deposit up to $10,000 into a special account that pays 10% per year. The interest, which is taxable when withdrawn, stops accruing 90 days after you leave the eligible region.
You can sign up for this account, called the Savings Deposit Program, only after you’re deployed, but you can calculate how much you can afford to invest ahead of time.
You will receive extra money in your paycheck when you’re in a combat zone because your income is tax-free during that time. So if you’re in the 25% income-tax bracket (with taxable income of more than $33,950 on an individual return), you'll avoid $250 in taxes for every $1,000 you receive in tax-free, combat-zone pay. You can stick that extra money in the account earning 10% interest, then withdraw the money and all the interest 90 days after you return.
For more information, go to the Defense Finance and Accounting Service military pay page and type “Savings Deposit Program” into the search engine.
For more financial advice to help military families, see our new Personal Finance for Military Families special guide.
Reader Comments (1)
Posted by: Troy at 02/26/2009 05:24:20 PM
Millions of Americans who lost their jobs prior to September 1, 2008 could not afford Cobra. Millions more elected Cobra but have now depleted their resources and can not continue on. Still millions more with pre-existing conditions who rely on cobra to bridge the 18 month gap between their former employers insurance and their state's high risk insurance pools are struggling to pay their premiums every month to prevent being locked out of insurance permanently. Please join us in asking Congress and the Obama administration to eliminate the arbitrary September 1, 2008 cut-off date and 9 month limitation of assistance by signing our petition at petitions.com/petition/cobrareform and telling your friends about our efforts. Emel & Troy