USAA Review – Financial Products for U.S. Military Members & Veterans

For nearly a century, USAA (United Services Automobile Association) has offered an ever-growing suite of financial products to active-duty and retired members of the U.S. Armed Forces and their family members. According to its website, the San Antonio-based private organization was started back in 1922 by 25 military officers who couldn’t find an insurance company willing to cover their vehicles.

Today, USAA sells everything from brokerage and retirement accounts to flood insurance through about a dozen subsidiaries. USAA itself – the parent company of these subsidiaries – is member-owned and structured under Texas law as an inter-insurance exchange. This is a cooperative model, as opposed to a traditional corporation. All members can purchase insurance through this structure. As a member who owns a slice of the company, you’re eligible to receive a share of USAA’s annual profits.

Because USAA has only 20 or so offices in North America and Europe (London and Frankfurt, Germany), it conducts most of its business online or over the phone. If you’re a member of the military or are part of a military family, USAA is for you.

Eligibility: Who Can Join USAA?

Though USAA has changed a lot since the 1920s, it retains an unwavering focus on its original niche: service members and their families. Unfortunately, this means huge swathes of the U.S. population don’t qualify for membership.

The following groups are eligible to join USAA:

• Active-Duty, Retired, and Honorably Separated Personnel. If you’re a current or former service member without a dishonorable discharge, you’re eligible for membership.
• Cadets and Midshipmen. This includes cadets and midshipmen at service academies and individuals participating in the ROTC program.
• Children of Members. Children of military personnel and their spouses can become USAA members.
• Current and Former Spouses of Military Personnel. If your spouse is eligible to join USAA, you are too. This benefit continues after divorce or your spouse’s death.

What Can Nonmembers Get From USAA?

Even if you don’t qualify for membership, you may be able to use some of USAA’s products and services, such as investment accounts, life insurance, and shopping discounts. However, other types of insurance, loans, banking products, and credit cards aren’t available to nonmembers.

Since USAA’s policies regarding nonmembers are subject to change, it’s best to check directly with USAA before attempting to purchase any of its products or services as a nonmember.

USAA’s Personal Banking Products

USAA offers checking accounts, savings accounts, and CDs.

Checking Accounts

USAA offers two checking products:

• Classic Checking. Classic Checking has a $25 minimum opening deposit, no minimum ongoing balance, no monthly maintenance fee, surcharge-free access to tens of thousands of partner ATMs, unlimited funds transfers to any account at another institution, and 0.01% APY on balances above $1,000.
• Youth Spending. Youth Spending is a custodial account for kids under age 18. It has a $25 minimum deposit, no minimum ongoing balance, no monthly maintenance fee, surcharge-free ATM access at partner ATMs, and unlimited funds transfers. Once minor account holders hit age 13, they get access to USAA’s powerful mobile banking app.

Savings Accounts

USAA offers two free savings accounts:

• USAA Savings. Savings has a minimum opening deposit of $25 and a relatively low interest rate range, depending on your balance. ATM access and bank account transfers are free.
• Performance First. Performance First has a minimum opening deposit of $10,000 and higher yields that depend on balance tier (the best yields are reserved for balances above $250,000). ATM access and bank account transfers are free.

CDs

USAA offers fixed-rate CDs with terms ranging from 30 days to seven years. Rates increase in proportion to the CD’s term and are subject to change with prevailing benchmark rates.

USAA’s Investment Products

USAA offers taxable brokerage accounts, tax-advantaged retirement accounts, retirement annuities, education savings accounts, and other investment products.

Traditional Brokerage Accounts (General Investing)

You can trade stocks, bonds, options, mutual funds, and CDs in USAA’s traditional brokerage accounts, subject to a $3,000 minimum opening deposit.

Stock trades carry no commissions, but options and bond trades are pricey – $25 to $45, plus contract fees, depending on the security type.

USAA has dozens of no-transaction-fee funds. No-load transaction fee funds typically carry $45 commissions, so they’re not ideal for small-dollar investing.

Retirement Accounts

USAA offers traditional and Roth IRAs, as well as SEP IRAs and SIMPLE IRAs. These come with the same commission and fee scale as USAA’s brokerage accounts. They also offer access to USAA’s annuities, mutual funds, and managed portfolios.

Managed Portfolios

USAA’s taxable and tax-advantaged managed portfolios use automated investing technology to diversify and periodically rebalance clients’ investments across semi-customized baskets of ETFs. USAA builds portfolios based on clients’ stated risk tolerance, with higher-risk portfolios emphasizing stocks and lower-risk portfolios emphasizing fixed-income instruments.

Regardless of the asset mix, USAA’s management fee calculated as a percentage of assets under management, subject to a $275 annual minimum. Individual funds held in portfolios may charge additional fees that push total portfolio expenses higher than USAA’s account management fees. However, there are no trading fees or commissions. The minimum investment is $25,000.

USAA offers several different managed account types:

• Individual or joint accounts (taxable)
• Individual retirement accounts (IRAs), including traditional IRAs and Roth IRAs
• Simplified Employee Pension (SEP) IRAs for self-employed individuals and small-business owners
• Uniform Gifts to Minors (UGMA) or Uniform Transfers to Minors (UTMA) accounts for minor children

USAA and Third-Party Funds

USAA administers dozens of its own mutual funds. These range from conservative options such as money market funds and short-term bond funds to more aggressive options such as small-cap stock funds and a fund that tracks the performance of the tech-heavy NASDAQ 100.

On the conservative side, expense ratios tend to be less than 1%. Actively managed funds typically have expense ratios north of 1%. These expenses are subject to change over time. Most mutual funds require a $50 minimum investment and a monthly recurring $50 investment.

You can buy USAA-administered funds through your USAA traditional brokerage or tax-advantaged retirement accounts. You’ll have access to thousands of funds from other issuers, such as Vanguard and T. Rowe Price, through those accounts.

Annuities

USAA provides income (Single Premium) and deferred annuities (Flexible Retirement and Extended Guarantee).

In exchange for a one-time investment, the immediate annuity makes fixed monthly payouts for either a preselected period (such as 10 years) or the remainder of your life, with no maintenance fees. The deferred annuities allow your money to grow tax-free until you retire, also with no maintenance fees. The minimum investment is $5,000 for the Flexible Retirement annuity and up to $50,000 for the Extended Guarantee annuity.

Rates on deferred annuities vary by annuity type, account holder location, and amount invested. USAA doesn’t offer specific rate information for the immediate annuities.

529 Accounts (Education Savings)

USAA’s 529 savings accounts allow savings earmarked for primary and higher educational expenses (such as tuition, room and board, and books and supplies) to grow without incurring a federal tax liability if they’re used for eligible expenses. The minimum opening deposit is $250, or $50 if you set up a recurring monthly deposit of at least $50. These products may not be available in all states, so check with USAA first to see if they’re available in yours.

USAA’s Loan Products

USAA offers home loans, auto loans, personal loans, and specialty vehicle loans.

Mortgage Loans

USAA offers home purchase and refinance mortgage loans. These come in five varieties: fixed-rate, 5/1 adjustable rate (ARM), VA loans, FHA loans, and jumbo mortgages.

Terms range from 10 to 30 years, depending on the product type. Rates vary widely by product type but are generally competitive with other major lenders for that product type. They’re subject to change without warning, so it’s best to check with USAA early in the buying process.

Refinance Loans

USAA offers conventional and cash-out mortgage refinance loans, as well as VA streamline refinance loans (VA IRRRLs). Rates are generally competitive with other major issuers. Loan-to-value (LTV) limits apply, depending on the loan purpose and type.

For instance, a conventional refinance loan accommodates up to 95% LTV, while a cash-out refinance allows no more than 80% LTV. VA IRRRLs allow up to 100% LTV.

Auto Loans

USAA offers three types of auto loans: new car, used car, and refinance. New car loan APRs start at 2.59%, and used car loan APRs start at 2.99%. The exact rate depends on your credit history and location and is subject to change with prevailing benchmarks. USAA doesn’t provide an upper loan limit on either loan type.

Other Vehicle Loans

USAA also offers loans for RVs, boats, and motorcycles. Rates on these loans are generally a few points higher than traditional auto loans, depending on the vehicle type, your credit history, and your location. They are subject to change without warning.

Personal Loans

USAA provides unsecured personal loans in amounts as low as $2,500. Rates typically start around 7% but can range well over 10%, depending on your credit score and the loan amount. The company doesn’t provide an upper limit for its rates or principal amounts, but its lending standards get stricter as the principal increases. Terms range from 12 to 84 months.

USAA’s Insurance Products

USAA offers a slew of insurance products, including auto insurance, specialty vehicle insurance, property insurance, flood insurance, and life insurance.

Auto Insurance

USAA offers auto insurance to members in all 50 U.S. states and some overseas jurisdictions (typically where the U.S. military has a presence). It has a lot of the bells and whistles you find with other major insurers like Progressive and State Farm, such as accident forgiveness, safe driver discounts, family and bundle discounts, customer loyalty discounts, and roadside assistance.

Unique USAA auto insurance perks include a 15% discount for policyholders who store their vehicles on-base and an installment payment option that can be tailored to military pay scales. For instance, officers in training may be able to defer some of their premiums until they earn their higher-paying officer commissions. Policyholders who bundle home and auto insurance can save 10% off their premiums.

Other Vehicle Insurance

USAA also offers insurance for other vehicles, including boats, RVs, motorcycles, planes, and classic cars. Premiums and terms vary by vehicle type and policyholder.

Home and Property Insurance

USAA offers several types of insurance for your home and property: homeowners insurance, renters insurance, and rental/investment property insurance for landlords.

Flood Insurance

Through a subsidiary, USAA General Indemnity Company, USAA offers flood insurance policies underwritten by the National Flood Insurance Program. There are two types of policies: Standard for homeowners in high-risk areas and the lower-cost Preferred Risk for homeowners in low- to medium-risk areas. Both policies offer up to $250,000 in coverage for your home and up to $100,000 in coverage for the home’s contents.

Life Insurance

USAA administers four different life insurance products: military term (for members of the military only), level term (for everyone else), universal life, and whole life.

Both term life products come with terms of as short as 10 years and as long as 30 years. Premiums vary by age, location, and policy size.

Both the universal and whole policies build cash value over time, which you can borrow against. Unlike most life insurance policies issued to civilians, USAA’s policies don’t limit or withhold death benefits in the event that the policyholder dies in a violent conflict – a necessary feature in light of its customer base. With a USAA policy, your payout is the same whether you die of natural causes or in a war zone.

Medical Insurance

The USAA Health Insurance Marketplace lets members choose from a variety of major medical, dental, vision, long-term care, and other policies offered by private insurance companies (such as Cigna) and the military’s TRICARE health insurance system. USAA doesn’t administer these plans itself, but its members may secure lower premiums on them due to the company’s negotiating power.

Umbrella Insurance

USAA’s umbrella insurance policies offer additional protection for problems that might not be covered by other types of insurance, such as legal and judgment costs if you’re sued for libel or slander. The standard coverage amount is $1 million. Premiums start at $19 per month.

Other USAA Products and Services

Other USAA benefits include its Car Buying Service, multiple discounts with retailers and service providers, and the signature USAA Subscriber’s Account.

Car Buying Services and Benefits

USAA’s website has a powerful car-finding feature known as the Car Buying Service. It’s similar to what you’d find on AutoTrader or Cars.com. You can use it to find your preferred vehicle make and model at a dealer in your area. When you use the Car Buying Service and take out an auto loan on your eventual purchase with USAA, your interest rate is reduced by 0.50%.

USAA also has a network of USAA Certified Dealers that offer special car-buying discounts. According to USAA, members save an average of $3,554 off MSRP for new cars, but discounts are subject to change at any time. If you buy a vehicle through one dealer and then find a lower advertised price at another dealer within four days of purchase, USAA will refund the difference.

Shopping and Service Discounts

USAA offers discounts on products and services through partnerships with individual companies. For instance, members get special deals on home security systems with ADT, storage systems with PODS, and flowers with FTD. USAA doesn’t specify how much these discounts are worth.

Subscriber’s Account Distributions and Allocations

Every member who purchases a USAA insurance policy receives a Subscriber’s Account. Administered by the company’s board of directors, this account holds a portion of USAA’s capital reserves. This is a key feature of USAA’s legal structure. As a cooperative organization, every member owns a piece of the company, and the Subscriber’s Account represents that ownership.

Your Subscriber’s Account balance is proportional to the total amount of insurance premiums you’ve paid, with a percentage of each premium payment deposited into the account. The percentage is determined by the board of directors, may vary year to year, and isn’t public.

This is USAA’s money, so you can’t withdraw it. But if the company turns a profit and meets financial performance goals set by the board of directors (which vary from year to year), it may distribute a portion of your Subscriber’s Account balance to you in December of each year. The distribution amount varies from year to year and is based on the company’s financial performance, your account balance, and your lifetime premium payments. You receive this distribution by paper check or direct deposit into your USAA bank account.

Once you’ve been a member for 40 years, you become eligible for an additional Senior Bonus, payable in February of each year. The amount of this extra bonus is subject to the same conditions as the regular bonus.

Advantages

USAA’s advantages include a huge range of products and services under a single roof, enlistee-friendly life insurance policies, the Subscriber’s Account, and flood insurance coverage.

1. Huge Range of Products and Services Under One Roof

Compared to many other financial institutions that do the bulk of their business online, USAA offers an impressive lineup of products and services. It includes most types of insurance, brokerage and retirement accounts, checking and savings accounts, and several types of loans. It also offers value-added perks such as rebates on auto and home purchases, discounts on other purchases, and identity theft protection.

With USAA, it’s possible to take care of most or all of your financial needs under one roof. By contrast, Capital One 360 offers lots of banking products and access to an online brokerage with their E*trade acquisition but no loans or insurance products. Allstate provides a similarly comprehensive range of insurance products but no banking or brokerage accounts.

2. Life Insurance Policies Don’t Include a War Clause

USAA life insurance policies don’t withhold or restrict death benefits for policyholders who die in war or violent conflict. If you’re an active-duty servicemember who dies in overseas fighting, your family will receive the same benefits as if you had died peacefully on U.S. soil.

By contrast, most other life insurance issuers limit payouts in cases of conflict-related death. Active-duty service members who face overseas deployment may have to pay higher premiums.

3. Potential for Annual Profit Distributions to Members

In addition to rebates and discounts on auto and home insurance and other purchases, USAA returns capital to its members in other ways. When you buy an insurance policy from the company, you automatically receive a Subscriber’s Account that holds a portion of USAA’s capital. If the company meets the annual financial performance goals set by the board of directors, you’re entitled to receive an annual payout from this amount that could range from a few dollars to several hundred.

If you’ve been a member for more than 40 years, you’re entitled to an even larger annual payout. Most traditional insurance companies, such as Allstate and Progressive, aren’t member-owned and thus don’t offer annual distributions to members.

4. Access to Flood Insurance

The FEMA-run National Flood Insurance Program (NFIP) underwrites all flood insurance policies issued in the United States, so many insurance companies – including powerhouses such as Allstate and Geico – don’t bother to offer their customers the opportunity to obtain flood insurance. Instead, they direct customers to NFIP.

By contrast, USAA’s members can buy NFIP-underwritten policies directly through one of the company’s subsidiaries. This allows you to conduct all your insurance business through one insurer.

Disadvantages

USAA’s top disadvantages include most products being off-limits to nonmembers, relatively low savings and CD yields, confusing customer service, and a hard-to-navigate website.

1. Many Products Aren’t Available to Nonmembers

Since it restricts membership to military personnel and qualifying family members, USAA’s full product lineup isn’t available to most Americans. As a nonmember, you may be eligible to open a brokerage account, purchase life insurance, and take advantage of its shopping discounts. But USAA reserves the right to close these services to nonmembers, so it’s best to check with the company before making a decision.

Eligibility is much less restrictive at insurance providers and financial institutions that aren’t member-owned, such as Allstate and Capital One 360.

2. CD and Savings Yields Aren’t Competitive With Other Online Banks

USAA’s CD and savings account rates tend to be on the low end, especially compared with online banks like Ally Bank and TIAA Bank. USAA’s yields tend to remain stable as prevailing rates change, so this disadvantage could lessen as benchmark rates fall. But if you’re chasing yields on FDIC-insured savings products, consider options other than USAA.

3. Customer Service Is Cumbersome and Confusing

USAA has live customer service professionals, but reaching them can be tricky. Though there’s a main number with a touch-tone menu to direct you to the right department, the sheer number of departments makes using it time-consuming. USAA advises you to call your desired division (such as IRAs, mortgage, or auto loans) directly.

However, this requires you to look up the pertinent number in USAA’s online directory, which can also take time. And since its offices are closed on the weekend, calling on Monday can be stressful and time-consuming – so much so that USAA advises members to call Tuesday through Friday instead. By contrast, Ally Bank’s customer service team is available 24/7 by phone, often with wait times of just a few minutes.

4. Website Is Dense and Difficult to Navigate

USAA’s website is difficult to navigate, and its most important parts – including drop-down menus – are clogged with small text. This makes it difficult to use on a mobile device. The design has become more responsive over time, but it’s still light-years behind the most mobile-friendly financial institutions out there.

Final Word

Serving in the military is an honorable calling that demands tremendous sacrifice. If you’re an active-duty, retired, or honorably separated service member or are related to someone who fits that bill, you may be eligible for membership in USAA. With perks that aren’t available through many other banks and insurance companies, there are plenty of reasons to join.

However, USAA isn’t for everyone, as only a handful of its products are available to nonmembers. And though the company has flirted with expanding eligibility requirements in the past, including a brief period when it welcomed employees of the FBI and other federal law enforcement agencies, it appears likely to prioritize its core constituency – the military – for the foreseeable future.

Are you a USAA member? What do you think of the company?