Are You Eligible for USAA Membership?

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It’s no mystery whom they serve.

“People sleep peaceably in their beds at night only because rough men stand ready to do violence on their behalf.”
–George Orwell

This is part one of a three part series on USAA. You can read part 2 (the good about USAA) and part 3 (the not so good about USAA) below.

Disclosure: USAA flew me to San Antonio for a three day conference from November 6-8, 2013, put me up in a hotel room, and fed me all on their dime.

One more disclosure: I’d have written this anyway. I see too many people missing out on eligibility opportunities to not write about the topic.

Are you thinking about joining USAA and want to know the USAA eligibility requirements? If so, read on!

When I was a plebe at West Point, we earned something like $60 dollars a month. Mom and Dad sent me a few bucks here and there for Boodler’s runs, but I didn’t really need the money. Aside from weekends at Ike Hall where a bunch of us would go, buy pizza and Cokes, dance, and try to avoid yearlings while looking as attractive as possible for the college girls that the Cadet Hostess bussed in from local colleges (impossible to do as a plebe), I had nothing to spend money on.

In my second semester, my roommate asked me if I knew what USAA was. I had no idea. He explained that they were an insurance company and a credit card company that only served military officers and Academy cadets. If I wanted to establish credit, I could get a credit card through them.

I called and joined. 21 years later, I’m still a happy member.

What is USAA?

Started as an automobile insurance cooperative between military officer friends a long time ago, USAA has grown into an enormous financial services membership organization still dedicated to serving the military and those who are associated with the military. USAA covers darn near every aspect of your financial life, from insurance to banking and credit cards to retirement products. In the second and third articles of this series, I’ll cover what I like and what I don’t like about USAA, but for now, suffice it to say that if you wanted to incorporate all of your financial life with USAA, you could.

As I mentioned, when I joined in 1992, eligibility was limited to officers in the military and those who were in a program to become commissioned officers.

At some point in the late 90s, they opened up to non-commissioned officers, and shortly after that, to enlisted service members.

Since then, they’ve opened up the gates again. Now, to be eligible, according to their website:

  • Active, retired and honorably separated officers and enlisted personnel of the U.S. military.
  • Officer candidates in commissioning programs (Academy, ROTC, OCS/OTS).
  • Adult children whose eligible parents have or had a USAA auto or property insurance product.*
  • Widows and widowers of USAA members who have or had a USAA auto or property insurance policy.
  • *Children must be 18 years or older to be eligible for USAA membership and purchase products in their own name. Children under the age of 18 can be listed as family members on their eligible parents’ car insurance policies.

USAA Membership Eligibility: Two routes to get in the door

You can take part in USAA products even if you don’t qualify for membership. You can still use the investment services that USAA offers, you can purchase life insurance from USAA, and you’re eligible to use their discounts (which I’ll cover in the next article); however, if you don’t qualify for membership, you’re not eligible for the auto, property, and other insurance products, and you cannot use the banking products. USAA bank and the credit cards are awesome, as we’ll see in the second part of this series, but the insurance products are what make USAA special. Specifically, if you’re eligible, we’re HUGE fans of USAA auto insurance. We have it, and one time, I was rear-ended by someone else who had USAA car insurance. They couldn’t have been easier and nicer to work with in getting that settled in no time (which was fortunate, because while I was not injured, my axle, unbeknownst to me, was injured beyond repair and had to be replaced).

If possible, you want to be a full member. Full membership means that you meet the criteria above and you hold some sort of insurance product with the company. You also are eligible for the member discounts and member distributions. While USAA is a for-profit organization, it occasionally distributes its profits amongst its members. To get the distributions, you must hold at least one auto or property policy. How much you get is a function of how much the board decides to distribute and how much business you do with USAA. It’s a nice perk, but it’s a perk.

Direct lineage counts

We have generations of people who are eligible for USAA who probably don’t realize it. From WWII vets through Korea and Vietnam to the Persian Gulf and Afghanistan, we’ve had generations of military service.

If you’re not a veteran or active duty but your parents or grandparents are, ask them if they’re members. If not, encourage them to sign up. If it’s your grandparents, then you’ll have to have your parents sign up so that you can sign up.

Of course, you want them to sign up only if they can get better insurance rates than they currently receive. From what I’ve seen, chances are good that they can get better rates.

In a sense, USAA is like the Mafia. Once you’re in, you’re in.

When I’ve spoken about insurance rates to agents, I usually get a pretty stock answer about USAA:

You’re with USAA? I rarely beat them.

I think it’s telling that Progressive doesn’t even compare rates to USAA.

Progressive Insurance Texas comparison chart by Fort Worth Financial Planner Hull Financial Planning

If you’re eligible for USAA, you should be joining USAA as quickly as you can. If you’re not, but your parents or grandparents were, it’s worth having a discussion with them. They will probably benefit, and they can pass on the membership eligibility to you. You’ll probably benefit as well.

Let’s dig in a little bit more into the good and the not so good.

USAA: The Good

Redskins Salute to Service

Strong ties between the military and the NFL.

“I refuse to join any club that would have me as a member.”
–Groucho Marx

This is part two of a three part series on USAA. You can read the first part (are you eligible for membership?) here and the third part (the not so good) here.

Disclosure: USAA flew me to San Antonio for a three day conference from November 6-8, 2013, put me up in a hotel room, and fed me all on their dime.

One more disclosure: I’d have written this anyway. I see too many people missing out on eligibility opportunities to not write about the topic.

I’ve been a USAA member for over 21 years. We use USAA for almost every aspect of our financial lives and, for the most part, have been very happy with our experiences. In the next article, I’ll outline the areas where I think USAA falls short of being a complete and comprehensive one-stop shop for all of your personal financial needs – assuming you’re eligible. In this article, I shall sing their praises.

Yes, I’m a USAA homer.

Without further ado, allow me to start singing.

Plug your ears. Animals think it’s mating season when I sing.

Banking and credit cards

For a long time, I was very leery of moving to a bank that didn’t have branches right next door. When I ran my last company, we often paid distribution checks. Those checks were paper checks. I needed somewhere to deposit those checks.

USAA was the first bank to offer mobile deposit.

Problem solved.

Furthermore, I can use my USAA debit card to withdraw cash at any domestic ATM, and they’ll refund my ATM fee. They’ll refund up to $15 of ATM usage fees each month. Since we budget based on paychecks that arrive twice each month and withdraw money twice, we’ve never come close to hitting this limit.

They also allow you to open multiple free accounts. We use them for our checking and for our tax payment accounts. We get free checks as well, which is useful since the IRS isn’t particularly good at handling bill pay checks.

Speaking of bill pay, their bill pay service is free, so you can use them to pay all of your bills.

If you are the type (like we are) who doesn’t want to see uncleared checks/bill pays sitting in the bank account, there’s a simple solution.

Open up another free account and use it for bill pays. Transfer money from your working checking account into the bill pay account and then pay the bill. Voila!

We also use USAA for our domestic credit card. I’m spooked to death of skimmers at gas stations, so I wouldn’t use a debit card there (or online) in a million years. We use credit cards instead. We get 1% cash back. It’s probably not the best credit card rewards program out there, but it’s not bad, and it’s super convenient to have the credit card and the checking account linked together.

If you have other bank accounts, you can use USAA to transfer funds freely from one bank to another. We still have a Capital One money market account that we use for our emergency fund. Since I was once an employee, I still get a higher money market interest rate, so we use it for that purpose. Transferring cash back and forth (usually in one direction) is a snap, and transfers into USAA from another bank are instantly available for withdrawal. No pesky waits.

You can also track your spending in one place. I use Mint for this purpose, but USAA has similar functionality, including the ability to aggregate accounts from multiple banks.

USAA Spending Tracker by Fort Worth Financial Planner Hull Financial Planning

You can also create and track budgets and see how well you’re doing against your plan.

USAA Budget Tracker by Fort Worth Financial Planner Hull Financial Planning

Were I not a long time Mint user, I’d use USAA’s functionality, since it’s embedded with my primary bank, and for people who are new to budgeting and are USAA members, I recommend they use the USAA platform.

USAA Insurance

As I mentioned in the previous article, using USAA’s insurance is what truly gets you into “the club.” You’re a full-blown USAA member, with access to everything they have to offer if you have an insurance plan with them.

We have automobile policies, a renter’s policy, term life insurance, and landlord policies with them. We also have an umbrella liability insurance policy and a valuable personal property insurance policy with them.

I’ve occasionally shopped around to compare, and in one case, which I’ll document in the last article in the series, I’ve been forced to use another insurer. I’ve never received rates as good as the ones that USAA offers.

I’ve never had to make a claim, so I can’t say what the claims process is like. Personally, I hope to never need to make a claim with them. However, I have spoken with them many times on the phone, such as when we moved (see “Can You Both a Renter and a Landlord Be?” for more on our decision) to Fort Worth, Texas (yes, I am a Fort Worth financial planner…shameless Google plug). Every interaction with them has been courteous and professional and I’ve never played “guess the phone tree number to get to a live human” with USAA. I’m the type who prefers self-service either on the Internet or by phone, so when I need to speak with someone who can fog a mirror on the other side of the line, I don’t want to go through the phone maze. I used to manage the phone maze at Capital One; I know what a good one is like, and USAA has a very easy, intuitive phone system to use, and their representatives are exceptionally professional.

You may or may not get a better rate. You should check to see if USAA offers better rates than you can get elsewhere.

Car buying and selling

I’m a fan of used cars and simplicity, having sold my last car at CarMax. When we bought my wife’s car, we looked for a used car and used USAA’s service first. They were very competitive, but through a slight stroke of luck, we found a super sweetheart deal.

However, if we were buying a new car (DON’T!), we’d use the USAA car buying service. Their negotiating power and deals with certain car manufacturers prevent you from dealing with an informational disadvantage at the car dealer. You tell USAA what you want, and they provide you with a sheet that you can use at their chosen dealer. You already know the price. No fuss, no muss, and it’ll probably be cheaper than what you can find yourself.

USAA Car Buying Service by Fort Worth Financial Planner Hull Financial Planning

I have a friend who is a marketing executive at a large car dealership, and this car buying service is her nightmare. They make very little profit when a USAA customer comes in to buy a new car, which is rarely the case when Joe Blow comes in off the street.

Again, your results may vary, but you should at least take a look at their car buying service when you’re in the market for your next car.

Buying a house

We have used USAA for finding a real estate agent, closing on a house, and moving into the house. You must be a member to use this service.

USAA vets their real estate agents and closing agents to provide an equivalent level of service that USAA employees provide to members who call. We had a very professional real estate agent and a reasonably priced closing attorney when we used USAA.

Furthermore, you can get cash back when you use their buying service.

USAA Home Buying Service by Fort Worth Financial Planner Hull Financial Planning

We also used USAA for our mortgage when we had one. They were competitively priced against other mortgages that we looked at, though do not take for granted that USAA will offer the lowest mortgage deal for you. It is worth your time to shop for a mortgage.

They also have an active discussion board about places to live where you can find insider information from fellow members.

USAA Home Discussion Board by Fort Worth Financial Planner Hull Financial Planning

They also have a price monitoring service available for one house and will soon be rolling out a service that helps you identify and mitigate risks to your home, such as wildfire mitigation.

Other neat stuff that I haven’t personally used

Medicare

If you need more coverage than just Medicare (and you probably do), then USAA offers plans that seem competitive against what else you can get in the marketplace.

USAA Medicare by Fort Worth Financial Planner Hull Financial Planning

Discounts

Whenever I need to send Mother’s Day flowers, I always go through USAA. I used to use them for rental cars too, but I rarely rent cars nowadays, so I simply forget to try them to see if they can beat Hotwire or carrentals.com.

USAA Discounts by Fort Worth Financial Planner Hull Financial Planning

Communities

USAA has several active communities, including military spouses, veterans, and financial advice. Most of the advice is good, but, as is the case with any online community, you have to take what you read with a slight grain of salt.

USAA Communities by Fort Worth Financial Planner Hull Financial Planning

Mobile apps

I’ve been an iPhone user since we got 3GSs back in about 2009. USAA has one of the most intuitive mobile apps I’ve seen. They designed their user experience with mobile first in mind and then expanded to tablets and finally the website itself, and it shows. If you’re a heavy mobile user, you’ll love the USAA mobile app.

I rarely go to the USAA website to do anything because I can do it all on the mobile app. I don’t print out my auto insurance ID card because it’s on my mobile app. I deposit checks using their app. I transfer money. I pay bills. There are probably things I can do on there that I don’t even realize. It’s that good.

We’ve seen the good of USAA. I’m a huge fan of many of their products and services. However, no evaluation would be complete without an honest assessment of their shortfalls. That’s what’s coming next.

USAA: The Not-So-Good

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Pretty cool rock formation at USAA headquarters. I’m not related to the kid in the picture.

“It is easier to forgive an enemy than to forgive a friend.”
–William Blake

This is part three of a three part series on USAA. You can read the first part here and the second part here.

Disclosure: USAA flew me to San Antonio for a three day conference from November 6-8, 2013, put me up in a hotel room, and fed me all on their dime.

One more disclosure: I’d have written this anyway. I see too many people missing out on eligibility opportunities to not write about the topic. I’m a huge fan of USAA!

In the past two articles, I’ve pretty much done nothing but sing the praises of USAA. They’re a full-service financial company who can help eligible members from soup to nuts with all of the aspects of their lives dealing with money.

If they’re so great, why don’t I just wholeheartedly recommend anyone who’s eligible to turn everything over to them?

I’d love to do that. There’s no point in having someone pay me for information and service that they could get for free somewhere else.

However, there are a few areas where USAA falls short, and that’s what keeps me from telling anyone who’s either a member or eligible to hang up the phone with me and call USAA.

This isn’t to say that I don’t think that if you’re eligible that you shouldn’t use them, not at all. As I previously outlined, there are some great things about them.

But, nobody’s perfect, and neither is USAA.

What are the areas where I think USAA falls short?

Brokerage and investment management services

My biggest beef with USAA is with their brokerage services (which I use). They have a reasonable suite of mutual fund offerings, but their fees aren’t best-in-breed.

Fees matter.

Let’s compare the USAA S&P 500 index fund (USSPX) to the Vanguard S&P 500 index fund (VFINX). We’ll invest $10,000 in each fund on the inception date of USSPX, June 28, 1996 and see how they’ve done through November 14, 2013.

USSPX vs VFINX total returns by Fort Worth Financial Planner Hull Financial Planning

That’s a $801.79 difference, which might not seem bad, particularly over 17 years. However, let’s assume that you need $1.5 million in assets to retire at age 50. You would have 60% of your investments in stocks, and if you were using a S&P 500 index fund as your stock investment, that difference would amount to $19,939.14. You might have to work another year to make up the difference.

Plus, if you want to buy into VFINX from USAA, you’re going to have to pay a significant commission, which you don’t have to pay from Vanguard into VFINX or from USAA into USSPX.

USAA VFINX Commission Fee by Fort Worth Financial Planner Hull Financial Planning

Just in case I didn’t mention it before, fees matter, because they’re cumulative and we eventually deal with large numbers as we come close to achieving financial independence.

Furthermore, if you do decide to use USAA to manage your assets, their fees, while below the industry averages, are still too high. Assets under management fees will hamstring your portfolio, and you should only pay a flat fee if you’re going to have someone manage your money for you.

Also, their asset managers have incentives to get money into USAA funds. So, you’re going to be paying them AUM fees to get put into underperforming funds. That’s a double whammy.

Banking account limitations

I’m a heavy user of USAA’s banking products. However, they’re not perfect. There are a few items that continue to annoy me that I’d love to see changed.

  • Limits on mobile deposits. I occasionally receive distribution checks from the company that I co-founded that are larger than the mobile deposit limit. Yes, I can go to a UPS store and deposit the check, but if I’m going to get out of the house to go to a bank, I’m going to go to an actual bank. Call me old-fashioned, but I don’t trust the UPS guy to not screw up a check with large numbers on it. I’d rather go to a bank. I’d actually rather just deposit it from home and get it taken care of, but that doesn’t happen.
  • Limits on transfers in and out of the bank. Based on the previous deposit limit issue, I’m also forced to make multiple transfers to get the money that I deposited elsewhere into the USAA system.
  • Can’t get cashier’s checks. Now, if I lived near a military installation where USAA had a branch, this wouldn’t be a problem. In fact, they have a great new feature where you can request a cashier’s check using your mobile app and then swing by the bank and print it out yourself without having to see an actual teller. But, I don’t live near one of their branches, so I can’t do that. As someone who purchases multiple rental properties per year, it’s an inconvenience and requires me to use another bank to complete my transactions.

I realize that the first two issues are primarily a result of their fraud detection and loss prevention policies, and they’re being conservative to make sure they don’t get swindled. The downside is balanced out by the immediate availability of the funds that I do transfer into USAA from another bank or from checks that I deposit using the mobile app. It still doesn’t make these other inconveniences go away.

One other concern that I have with USAA is their foreign exchange fees for both ATM withdrawals and credit card usage. They charge 1% on credit cards for foreign transactions and 1% for foreign ATM withdrawals. Since we like to travel internationally, these fees eat into our travel budget, forcing us to use other banks’ cards and accounts for accessing money.

Small business support

As I have stated before, one of the ways that you can achieve early financial independence is through entrepreneurship. It’s the path that we took, and veterans in particular have a strong entrepreneurial predisposition. Since USAA supports the military, their families, and veterans, it would seem logical that they’d have a robust small business and entrepreneurship program to help them out.

They don’t.

There is no business checking.

There is no solo 401k program.

There is no 401k administration program.

Setting up a SEP program is onerous. We did this with my last company, and we eventually abandoned it because it was more trouble than it was worth.

I don’t expect a lot out of a bank when it comes to small business support. Provide a checking account, a credit card, payroll support, and retirement plan administration, and don’t charge an arm and a leg to do it.

But, USAA falls short. If you’re an entrepreneur, you can’t look to USAA for support.

This is unfortunate. I’d love to have given them our business, but it wasn’t to be.

Rental property support

I have mixed feelings about this one. For the rental properties that I can and have insured with USAA, I’ve received the cheapest rates that I could find. They also have a pretty nifty maintenance calendar if you’re a DIY type.

I’m not a DIY type, though.

Again, if you’re going to achieve early financial independence, then investing in rental properties is a good way to go. It’s what we’re using to achieve PIRE.

I have two issues with USAA’s support of our efforts to become Donald Trump sans combover and, well…no political discussions here:

  1. You can only insure 10 rental properties with USAA, and they cannot be mobile homes. If you’re going to become a serious rental property owner, you’re probably going to have more than ten properties. For properties #6 and beyond, in Texas, I’ve used my buddy Ed Wise and have been exceptionally happy with the support he’s provided.
  2. They’re not great with renovation properties. The house that we purchased from Auction.com was gutted and in need of a serious makeover. When I called USAA, I informed them that it was a serious rehab project and would take probably three months to get into livable condition. They sent their underwriter a week later, and within 6 weeks, I had a cancellation notice because the property wasn’t livable. Ed Wise got that insurance contract.
  3. Updated July 30, 2015: Personal liability insurance limitations. We just got notification that we are losing our personal liability umbrella policy (PLUP) because we do not have all of our rental properties insured with USAA. Apparently, they will now insure up to 10 rental properties, but that won’t help us. Therefore, we have to go elsewhere for a PLUP.
    1. Conclusion

      The issues I’ve raised in this part of the series may seem like nitpicking, but if you’re serious about achieving early financial independence or you’re an entrepreneur (or both), they’re fatal flaws to using USAA as your true one-stop provider of all of your financial needs.

      With that in mind, USAA should be in your suite of financial services and insurance providers if you are eligible. They’re our primary, go-to provider for insurance and banking, and we’ve been very happy with their support.

About Jason Hull, CFP®

Jason Hull, CFP®, is the Managing Member of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies.