Having a reliable savings routine is critical for financial stability. Often, during a deployment, spending isn’t a significant issue for military members. After all, buying options are usually highly limited. Nearly all of your basic living requirements are met by the military. However, a deployment also offers a unique opportunity to grow your savings. Along with additional pay, you may be able to leave the funds untouched for a lengthy period. If you want to meet your goals of saving money while deployed. Here are five tips to get you started.
1. Try the Savings Deposit Program
Administered by the Defense Finance and Accounting Service (DFAS), the Savings Deposit Program (SDP) is an option that focuses on helping military members grow their savings during a deployment. SDP offers a guaranteed annual return of 10 percent, far outpacing most other savings vehicles. Up to $10,000 in savings can earn that rate, and it is completely risk-free, unlike many investments.
In order to be eligible for SDP, you first need to have been deployed in a combat zone for at least 30 consecutive days or a minimum of one day each month during a three consecutive month period. At that point, you can contact a military finance office, create an account, and set up deposits. The money can move directly out of your pay, so you don’t have to worry about making the transfers manually.
Up to $10,000 will earn interest at a 10 percent annual return rate for the duration you are in a combat zone and up to 90 days after you return home or to your permanent duty station. The money cannot be withdrawn until you leave the combat zone, ensuring it will grow while you’re deployed.
A 10 percent annual rate adds up quickly. If you have $10,000 in the account, in just 10 months, you’ll earn over $857 in interest. In comparison, an account with a 4 percent annual interest rate only comes with about $337 in interest earnings.
2. Up Your Thrift Savings Plan Contributions
If you have a Roth Thrift Savings Plan (TSP) account, a deployment is a perfect time to up your contributions. As with any Roth IRA, the money grows tax-free and isn’t taxed when it is time to take distributions. But, since you are deployed, you can put in tax-free money, creating a win-win-win on the tax front. This can really help with saving money while deployed.
While you are deployed in an eligible combat zone, according to the Internal Revenue Service (IRS), your basic pay, reenlistment bonuses, imminent danger pay, and certain awards or financial incentives are excludable when it comes to income taxes (though Social Security and Medicare taxes do still apply). As a result, you get to keep more of your earnings, so you might as well put the money to good use and grow your Roth TSP.
If you have a traditional TSP or don’t have a TSP at all, opening a Roth TSP ahead of your deployment could be an incredibly smart move. Plus, you can always adjust your contributions down when you return home or to your regular duty station, making it a great way to grow your savings without a long-term contribution commitment.
3. Lower Your Expenses
When you deploy, you often gain access to options that can help you lower your expenses. For example, if you are going to be storing your vehicle, you can adjust your auto insurance to get a lower rate while your car sits in a garage. For example, you could remove liability and collision coverage, opting just for comprehensive.
You may also be eligible for bill reductions on cell phone, cable, or similar service plans that you won’t be able to use while deployed. Some credit card and loan issuers also give deployed military members access to temporarily lower interest rates.
By cutting your expense, you can direct that additional money into savings. Even an extra $20, $50, or $100 a month adds up fast and can help you earn more in interest.
4. Open a High-Yield Savings Account
If you need to make sure that some of your money is accessible but is also earning as much interest as possible, opening a high-yield savings account is a smart move. Also called high-interest savings accounts, these options allow you to earn more in interest that accounts offered by most banks.
For example, the average interest rate on a savings account is just 0.09 percent. If you have $5,000 in savings, over the course of 12 months, you’ll only earn $4.50 in interest over the course of that entire year.
With a high-yield savings account, you might be able to secure an interest rate above 2 percent. That same $5,000 would earn $100.92 instead during that year. That’s an additional $96.42 without any work on your part or extra contributions.
5. Consider Investing for Saving Money While Deployed
If your retirement accounts are squared away, you’re carrying no high-interest debt, and you have a healthy emergency fund, then opening an investment account before a deployment could give you another way to grow your savings. While an investment account isn’t highly liquid, it has the potential to earn more in returns that even a high-yield savings account, which is beneficial.
While investing does come with risk, certain approaches are less risky than others. For example, investing in index funds could be a good choice. Index funds usually have lower fees and typically perform better than many actively-managed funds, making them fairly reliable and less expensive. Plus, index funds come with an automatic level of diversification, further limiting your risk.
If you don’t know where to start, consider an S&P 500 index fund, as it is a great option for investing beginners and has performed well historically.
Ultimately, all of the options above can help your savings grow while deployed. Consider using several to maximize your earnings while you are away, allowing your money to work hard for you while you work hard serving during a deployment.
Do you have any tips that can help military members and their families grow with saving money while deployed? Share them in the comments below.
- How Much Do You Need to Invest in Stocks?
- What Does a Financial Advisor Do and Why It May Be Time to See One
- How to Manage Personal Finances When You Live Alone
Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.