Savings clubs are very popular ways to save because they form a social contract between friends which helps create the discipline to save every month. Also when you are pooling your resources you are able to make a more significant investment.
Why are you saving?
When starting a savings club you need to decide what you are saving for, how much you will each save and how you will divide the money:
- 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 need to decide at what point 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 reached a specific target.
- You can plan something as a group – go on holiday or purchase goods in bulk and share
- You can form an investment club where you save up a lump sum and invest in unit trusts or buy shares on the stock market. You would have investment meetings where you can discuss shares and do some research. This would be a much longer term investment of at least three years.
- You may want to pool your savings to start a small business – this also requires some research, business knowledge, and an agreement regarding the running of the business
Once you have agreed on the purpose of the club you need to write up an agreement which addresses these questions:
How much will each person will contribute?
What is the purpose of the club?
What happens if someone stops contributing or needs to cash in early? Here for example another member could have the option to buy up the ex-member’s portion of the investment
Where will the account be held?
Who will be the signatories? It is important that you open an account to hold the funds where there are at least two signatories required.
Type of investment
The short term account: A shorter term investment of less than 2 years is best kept in a high interest bank account. All four major banks offer savings clubs. You need to consider the bank fees and interest rates as well as value add products.
For example the Absa Club account 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 could go to funeral cover and the rest to savings.
If you don’t need these products and just want a higher return consider accounts that pay higher interest such as a 32 day notice account or Nedbank’s NedTerm. It has a minimum deposit of R1000, additional deposits of R100 and no minimum limit on the amount you can withdraw. Funds are available at one day’s notice.
Investment account: Another option is to start an investment club. The difference is that this would be a longer term savings plan of between 3 years to 5 years. You could collectively invest in exchange traded funds like Satrix Rafi (www.eftsa.co.za for more information on exchange traded funds) or in unit trusts with one of the large asset management companies, Watch out for high upfront fees and rather select a fund manager that has low to zero initial fees like Investec, Allan Gray and Coronation for example.
Buying shares: Some clubs start a share portfolio where every couple of months they buy a share on the stock market. This requires research by the members and is riskier option and should be seen as a hobby rather than forming the core of your pension fund for example.
Usually you need to start off with around R5000 to be cost effective due to the minimum fees charged by a broker. You would invest this in one or two shares and then when you have another lump sum you would buy another share to add to your portfolio. There are many online brokers such as BJM Private Client Services (www.bjmdirect.co.za), PSG Online (www.psgonline.co.za) Online Share Trading (www.standardbank.co.za).
Standard Bank’s Online Share Trading has a product called Auto Share Invest (ASI) that allows you to invest directly in the market with a monthly debit order and is relatively cost effective for smaller investments. The minimum is R500 a month and costs are around R25 which works out at 5% on a R500 investment. This means that the share price must first increase by 5% before you are making money. If you want to become an active investor on the JSE it is advisable that you attend Online Share Trading’s educational seminar to familiarise yourself with the markets. It is free and you can contact them 0860 121 161 or email email@example.com for details and venues
What you need to open a collective account
- Valid South African identity documents (i.e. Green Bar-coded ID Books) may be accepted as the identification medium.
- Proof of residential address.
- A copy of the society’s constitution. If one does not exist in writing, a written declaration (obtained in the branch) is required. The declaration must be furnished by all the mandated officials authorised to establish a business relationship on behalf of the entity.