Definition, types, how they work

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

Meeting savings goals for specific future expenses can be challenging. 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 bank or credit union. Groups of people can also form their own savings clubs.

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

How do savings clubs work?

banks and


credit unions

they run formal savings clubs, which are structured similarly to regular accounts. Informal savings clubs, often called social savings clubs, are operated by groups striving for common goals and can be established in a variety of ways depending on their goals.

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

The interest and penalties associated with savings clubs create an accountability structure designed to make it easy to save and achieve your goals.

Formal savings clubs are usually tied to specific goals, such as paying for holiday gifts or vacations. Many offer automatic transfers that regularly move money into 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 or credit union accounts. 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 from six months to a year. Some include weekly or bi-weekly automatic deposits and impose penalties for missing payments or withdrawing money early.

Savings club interest rates can be more competitive than regular savings accounts, though 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 III, executive vice president of Equitable 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’s also the benefit of knowing that others are participating in the club and working toward similar goals, Dunbar says.

“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 ones, particularly in women’s communities, says Hunsaker. They developed as social pacts, in which friends or relatives got together to set goals and held each other accountable for meeting them.

“As far as I know, informal social savings clubs have been around for about 400 years in Nigeria,” explains Hunsaker. “They are very, very entrenched in consumer finance in many African countries.”

Informal savings clubs often rely on people coming together to determine a set of rules and structure for the club. It’s usually about creating accountability, similar to how a book club might work for reading, so that everyone in the club stays 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 where all members deposit their contributions. Or, each member can do it on individual accounts.

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

“The community part is really important,” says Dunbar. “That celebration and community does something for us and maybe fuels the next opportunity to go for something bigger because his community helped him get there.”

Hunsaker says he sees a growing popularity of social savings clubs in the US, largely thanks to social media. “A common goal I see is an emergency savings of $1,000,” she says. “Having something where everyone can respond to how they’re doing makes it more fun and gives you support.”

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

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

Step 1. Define your goal and find your people

Determining who should be a part of your savings club will look different to different people.

If you’re looking for support to save a $1,000 emergency fund, finding others who have a similar goal and are looking for responsibility can be a good place to start.

“You can check out your religious organization, business organizations, local nonprofits, or the place where you play,” says Dunbar.

Step 2. Determine club rules and structures

Each social savings club may have a different structure, but the idea is to design your group so that everyone feels supported and is meeting their goals.

“Find out the internal structure and get everyone’s agreement on it,” advises Hunsaker.

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

Step 3. Determine where you will save the money

Some social savings clubs use joint bank accounts, while others only require members to prove they are saving. It all comes down to member preferences.

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

Step 4. Meet the planned schedule

Setting up the social savings club will probably take more time. But once the rules and structures are in place, use group accountability to move forward with the plan.

Beware of Social Savings Club Scams and Other Risks

While social savings clubs can be beneficial, make sure you’re aware of the potential for scams and other risks.

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

“With informal clubs, if you’re transferring money, make sure they’re people you trust,” says Hunsaker. If you’re interested in joining a savings club where the money comes out of your individual account, proceed with caution and make sure you do your due diligence.

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