Save Money

I’ve been reading the Bogleheads forum lately. For those not in the know, it is an outstanding personal finance and investment web site based on advice from Jack Bogle. One thing that caught my eye is that most military personnel are using a certain trio of banks once they grow beyond basic checking and saving account requirements. I realized I have done the same.

Where USAA Shines – Banking and Insurance

I joined USAA in 2003 and was impressed with their outstanding customer service. Their checking and savings accounts are free. The ATM rebates are nice. Their customer service when dealing with insurance claims is amazing. I still have USAA today for checking/savings/insurance.

As I added accounts, my first hunch was to always go with USAA. Over time, I realized that is a mistake. I first learned that when shopping for a mortgage for my first home. Other banks were easily beating the rates quoted by USAA.

Shop Around for Home/Auto Loans

When it comes to home mortgages and auto loans, you really need to check Navy Federal and Pentagon Federal Credit Union. Their rates almost always beat USAA. These banks have very good reputations and quality customer service. One thing to keep in mine is the ‘customer service’ aspect is not as important when it comes to loans. Once the deal is done, you pay it back at the agreed upon rate.

Use Vanguard for Investments Beyond TSP

One thing you will learn on Bogleheads is to avoid USAA for investments. Of course, you should always max out TSP first. But if for some reason you are looking outside TSP (like me with my wife’s retirement fund), then you want to look at Vanguard. Why? USAA’s mutual funds have high expense ratios.

For example, the USAA First Start Growth Fund has an expense ratio of 1.44%. The Vanguard Retirement Target 2050 fund has an expense ratio of 0.16%! USAA takes much more of your money to run their investment fund as compared to Vanguard. That is money that will slow down your returns over the long haul, likely taking thousands out of your retirement fund.

I will not dive into returns in this post, but overall Vanguard has a sterling reputation as compared to other mutual funds when it comes to performance.

You can read more about why expense ratio is important here.

No. No you should not sign up for Military STAR card, ever.

Every time I see a promotion for Military STAR card at the BX, a part of me dies inside. I was once a young Airmen shopping at the BX, naively thinking a STAR card would be ‘good for me’ and allow me to grow my credit. A year later my STAR card was maxed out, and just another bill to be paid on top of several others.

Here are several reasons to avoid the STAR card.

You Do Not Need a STAR Card to Build Credit

I know what you are thing… ‘I’m young and have no credit. This is a great way for me to get started.’ What do you need credit for anyway? To buy a car?

Well guess what, you know who already has sufficient credit to buy a reasonable car? People in the military with a steady job and income!

Local credit unions and banks such as USAA are willing to give you a car loan at a decent rate based solely on your active status in the military. So you do not need to build credit via credit cards to appear attractive as a borrower in their eyes.

You Are Unlikely to Pay Off the Card Every Month

If everybody got a STAR card and paid it off every month, then the program would no longer exist. The reason the offer 10% off your entire first purchase just for signing up, is they know you will rack up a balance on the card and not pay it off.

When you pay the minimum balance on that card, you are paying interest directly to the card company, which as of December 17, 2015 is 10.49%. According to this credit card calculator, it will cost you $10 per month and 11 years to pay off the card! That is basically $10 per month out of your budget, going nowhere!

You Will be Penalized for Late Payments

Paying a $500 balance on time will cost you around $10 per month. But if you are late on your payments, the interest rate goes up to 18.49%! It would now take you 21 years to pay off that same balance using the minimum payment.

As a bonus, AAFES can contact your military leadership if you late on payments, negatively highlighting you.

The Rewards Program is Not Worth the Risk

So the Military STAR card gives you 10% off your first purchase when signing up for the card. You can also get 5% off when purchasing gas (same as most grocery stores offer with no credit card). Say you spend $300 during that first purchase and save $30. The card company will make that money back (and you will lose that money to interest) in about six months if you do not immediately pay off the balance.

Need new boots like the guy in this video? First – talk to your resource advisor and see if you can get boots through your unit. As a second option, save up the money and buy them with cash! If you have a steady paycheck and are being responsible then why is your first option to buy boots on credit?

Shame on AAFES for putting military in uniform into these videos.

Need more reasons to not get a Military STAR card? Check the top comment to a Reddit thread discussing the same question:

There are lots of better options out there. If you have absolutely zero credit or something, it can get you started, but it’s really not a great card.

To sum it up, you don’t need a STAR card to build your credit, the rewards program is crap, and your credit will be negatively impacted if you pay late.

Stay away from Military STAR card!

Here’s my list of the best military discounts and coupons:

1. Home Depot and Lowes – 10% off every day! Just show your military ID.

2. Microsoft Office – $79.99 for Home and Student Edition

3. CNN Tour in Atlanta, GA – free

4. American Airlines Admiral’s Club – free when traveling for deployment or R&R

5. The Finish Line (shoes) – 20% off