Chaka wants some ideas on how to set up a savings club account: “My four friends and I have opened a bank account and have been depositing R100 each month since end of February 2010. We are struggling to draw up an agreement for what this money will be used for — is it possible to be part of an investment/savings club and a mini stokvel that covers things like funerals asks Chaka
Maya replies:
The right account
Most banks offer savings club accounts that require more than one signatory so that no single member can withdraw the cash. If your current account does not provide for this you may want to consider changing it.
Another account to consider based on your needs is the Absa Club account, which offers accidental death cover for up to 10 members for free and family funeral cover for R25 a month per member, so a portion of your contribution goes to funeral cover and the rest to savings.
If your account does not include funeral cover you can also investigate some group schemes that offer group funeral plans — preferably from reputable and registered companies and not small and shady suppliers.
If you do have a time period of between six months to two years then you may want to consider a fixed deposit that provides a higher rate but which allows you to add to the account each month. Capitec provides these types of flexible savings accounts at excellent interest rates.
Coming to an agreement
If you have not decided what to spend the money on, your idea was probably to just create a vehicle for disciplined savings.
The first question you need to ask is your time frame. Is this something you want to cash in every 12 to 24 months or is this a long-term savings plan for the next five years?
A short-term savings plan for a year or two is best invested in a bank account, while a longer-term savings plan would be better invested in a unit trust or exchange-traded fund that would provide growth on the investment.
For example, you could open an FNB account and have a debit order into one if its unit trusts. This would allow you to keep some of the funds for short-term needs while allocating a portion for longer-term savings. But a word of warning: five years is a long time and it may be a challenge to convince all the members not to draw out the cash before then.
Eunice Sibiya, the programme manager for FNB’s consumer education, says there are several reasons for saving through a savings club:
- You can split the money equally and spend it according to your personal/family needs. This may be the easiest option to agree on as it allows the members to spend the money how they choose. However, you do need to decide on when you will cash in the funds. December is a very popular end date because that is when most people need a cash injection either for holidays, gifts, school fees etc. Alternatively, you could agree only to cash in once you have saved a set amount.
- You can plan something as a group — go on holiday or purchase goods in bulk and share.
- You can save up a lump sum and invest in an investment account with a higher interest rate and start another round or deposit directly into the investment account.
- You may want to start a small business — this also requires some research, business knowledge, an agreement regarding the running of the business, etc.
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