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Personal Finance

Definition, Types, How They Work

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

Reaching 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 of regularly contributing 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 chartered financial consultant and founder of the women’s online financial community, AskFlossie.

How do savings clubs work?

Banks and


credit unions

administer formal saving clubs, which structure them similarly to regular accounts. Informal savings clubs — often called social savings clubs — are operated by groups striving toward common objectives and can be set up in various ways depending on their goals.

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

The interest and penalties associated with savings clubs create an accountability structure designed to make saving and reaching your goals easier.

Formal savings clubs are usually tied to specific goals like 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 do savings club accounts differ from regular accounts?

Saving clubs often have different rules from regular bank or credit union accounts. The idea is to promote regular saving and ensure the account owners meet their goals.

Many savings club accounts require minimum deposits, sometimes as low as $1, and term lengths, often six months to a year. Some include automatic weekly or bi-weekly deposits and impose penalties for not making payments or taking money out early.

Savings club interest rates may be more competitive than regular savings accounts, though it varies 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 at Equitable Advisors. “Things that happen automatically are huge for accomplishing goals.”

While the relationship in formal savings clubs is between yourself and the financial institution, there’s 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,” Dunbar says.

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, where friends or family members would get together to set goals and stay accountable to each other to meet them.

“Informal social savings clubs have been going on for, as far as I know, about 400 years in Nigeria,” Hunsaker explains. “They are deeply, deeply baked into consumer finance in a lot of African countries.”

Informal savings clubs often depend on individuals who come together to determine a set of rules and structure for the club. Usually, they’re about creating accountability, similar to how a book club might work for reading, so everyone in the club stays on track.

Social savings club members may or may not transfer money to a third-party institution like a bank. There could be a group bank account to which all members deposit contributions. Or, each member may do it in individual accounts.

“The accountability is all social, and the structure of it is whatever people dream up,” Hunsaker says. 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. “That celebration and community does something for us and maybe fuels the next opportunity to go for something bigger because your community helped you get to the line.”

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

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

Though setting up a social saving club could 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 saving club will look different for different people.

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

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

Step 2. Determine club rules and structures

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

“Figure out the internal structure and get everybody’s agreement on that,” Hunsaker advises.

This could mean you’ve agreed to meet at the end of every month and everyone needs to bring records showing they’ve saved a certain amount.

Step 3. Determine where you’ll save the money

Some social savings clubs use joint bank accounts, while others just require members to show that they’re saving. It comes down to the members’ preferences.

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

Step 4. Follow through with the planned schedule

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

Beware of social savings club scams and other risks

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

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

“With informal clubs, if you’re transferring money, make sure it’s people who you trust,” Hunsaker says. If you’re interested in joining a savings club where money moves out of your individual account, proceed cautiously and make sure you do proper due diligence.

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