Definition, types, how they work

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  • Savings clubs are designed to make it easy to set aside money for a specific purpose.
  • They can be formal or informal and be organized differently depending on the type.
  • Formal savings clubs are similar to regular bank accounts, while informal clubs involve community organization.

Meeting savings goals for specific future expenses can be a challenge. One way to overcome it is with a savings club.

Savings clubs are a way to regularly contribute funds to an account for a specific purpose. You can usually find savings club accounts offered at your local bank or credit union. Groups of people can also form their own savings clubs.

“There are two types of savings clubs, formal and informal,” explains Claire Hunsaker, licensed financial consultant and founder of the online women’s financial community, AskFlossie.

How do savings clubs work?

The banks and


credit unions

operate formal savings clubs, which they structure in the same way as regular accounts. Informal savings clubs – often referred to as social savings clubs – are run by groups that pursue common goals and can be set up in different ways depending on their goals.

With a formal savings club, you open an account with a commitment to make regular payments over a set period of time. The credit union or bank pays interest on your deposits, so you get back a little more than you put in. There is also a penalty for early withdrawals.

The interest and penalties associated with savings clubs create a liability structure designed to make it easier to save and reach your goals.

Formal savings clubs are usually tied to specific purposes such as paying for gifts or vacations. Many offer automatic transfers that regularly transfer money to the savings club account. Opening a savings club account is similar to opening any other bank account.

How are savings club accounts different from regular accounts?

Savings clubs often have different rules than regular bank accounts or credit unions. The idea is to promote regular savings and ensure that account holders meet their goals.

Many savings club accounts require minimum deposits, sometimes as low as $1, and terms, often six months to a year. Some include weekly or bi-weekly automatic deposits and impose penalties for non-payment or early withdrawal of money.

Savings club interest rates can be more competitive than regular savings accounts, although they vary by bank and credit union.

“The real value of a savings club is that it happens automatically without any effort,” says Stephen Dunbar IIIexecutive vice president at Fair Trade Advisors. “Things that happen automatically are huge for achieving goals.”

While the relationship in formal savings clubs is between you and the financial institution, there is also the benefit of knowing that others are participating in the club and working toward similar goals, Dunbar notes.

“Accountability, simplicity and automated transfers are what make savings clubs so valuable,” says Dunbar.

Informal social savings clubs

Informal savings clubs have a much longer history than formal clubs, especially in women’s communities, Hunsaker says. They developed as social pacts, where friends or family members would come together to set goals and remain accountable to each other for achieving them.

“Informal social savings clubs have been around for, as far as I know, about 400 years in Nigeria,” says Hunsaker. “They are deeply entrenched in consumer credit in many African countries.”

Informal savings clubs often depend on individuals coming together to determine a set of rules and structure for the club. Usually they aim to create accountability, similar to how a book club might work for reading, to keep everyone in the club on track.

Social Savings Club members may or may not transfer money to a third-party institution such as a bank. There could be a group bank account into which all members deposit their contributions. Or, each member can do it in individual accounts.

“Accountability is entirely social, and its structure is what people imagine,” says Hunsaker. Ultimately, the goal is to hold each other accountable to set aside a certain amount of money each month toward a goal.

“The community part is really important,” says Dunbar. “This celebration and this community is doing something for us and maybe fueling the next opportunity to move on to something bigger because your community has helped you get to the line.”

Hunsaker says she sees social savings clubs growing in popularity in the United States, thanks in large part to social media. “A common goal I see is an emergency savings of $1,000,” she says. “Having something where everyone can react with what they’re doing makes it more fun and gives you support.”

How to start a social savings club with your friends or family

Although forming a social savings club may differ from group to group, the general steps are the same.

Step 1. Define your objective and find your collaborators

Determining who should be in your savings club will be different for different people.

If you’re looking for help saving a $1,000 emergency fund, finding others who have a similar goal and are looking for accountability can be a great place to start.

“You can turn to your religious organization, business organizations, local nonprofits, or where you have fun,” says Dunbar.

Step 2. Determine Club Rules and Structures

Each social savings club may be structured differently, but the idea is to design your group so that everyone feels supported and achieves their goals.

“Find out the internal structure and get everyone on board with it,” advises Hunsaker.

This could mean that you have agreed to meet at the end of each month and everyone must bring documents showing that they have saved a certain amount.

Step 3. Determine where you will save money

Some social savings clubs use joint bank accounts, while others simply require members to prove they are saving. It depends on the preferences of the members.

If you create a joint bank account, make sure you trust your group and that there are clear records so everyone gets their money back. If each member manages their own money, they can open a designated account for their savings club contributions.

Step 4. Follow the Schedule

Setting up the social savings club will probably take the most time. But once rules and structures are established, use group accountability to follow the plan.

Beware of social savings club scams and other risks

Although social savings clubs can be beneficial, be sure to stay aware of the potential for scams and other risks.

“You shouldn’t have to pay a fee to do this,” advises Dunbar. He says you should probably avoid any group or institution that demands such payments.

“With informal clubs, if you’re transferring money, make sure it’s people you trust,” says Hunsaker. If you want to join a savings club where the money comes out of your individual account, proceed with caution and be sure to do your due diligence.

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