Got a savings goal? Consider forming a savings circle

Jun 22, 2022, 4:00 AM | Updated: 4:04 am

A breezy January morning made the mid-30 temperatures feel even chillier. But it was an important day for the young man pushing 30 himself . He was about to face his entire family to ask for a loan to seed his new business idea.

He had contributed to the family’s savings circle, but he was asking for a withdrawal this time.


A savings circle is a group of family members or friends who regularly contribute to a collective fund. Members gain access to a share of the proceeds on a rotating basis or as needs arise.

A savings circle can also be called a money pool. Or flip the benefit, and it’s known as a lending circle. The practice carries many names worldwide and among American immigrant communities, including tanda, sou-sou or tontine.

It can be an informal gathering with regular monthly contributions and one disbursement or one individual’s request for funding approved by the group. Some savings circles predetermine automatic withdrawals for each member in a particular order.


Berry Gordy was 29 that cold Detroit day in 1959 when he faced the family’s pointed questions regarding a $1,000 loan from the Ber-Berry Co-op — named after his parents, Bertha and Berry. After a lengthy discussion, the group voted to give him $800.

And with that seed money, Motown Records was born.

David Ellis, a digital media curator at the Motown Museum in Detroit , says Gordy’s parents created the savings effort to help seed family business ideas. Each family member, including spouses, contributed $10 monthly to the fund.

“The funniest part … is the interest that Berry Gordy had to pay. They were family, but they were still very professional people,” Ellis adds.

Unlike many traditional family and friends savings circles, Gordy had to repay the loan and would be charged 6% interest if he didn’t pay off the note within one year.

However, repayment wasn’t a problem. Motown Records became a music institution, and Gordy sold the label for $61 million in 1988 . A 50% share of the Motown song catalog garnered an additional $132 million for Gordy in 1997.


Right out of grad school, Fonta Gilliam was working as a U.S. foreign service officer in South Korea, “stamping visas at the consulate.”

“This lady walks up to my window … wanting to immigrate to the United States to start a business. She was going to start a dry cleaner if I remember correctly.”

The woman, a street vendor, had six figures of cash in a savings account.

“I remember thinking, ‘OK, this is fraud,'” Gilliam says. But the woman related how she had participated for years in a savings circle with friends in her neighborhood, “and it was finally her turn” to make a withdrawal.

“I learned how a lot of people around the world are using informal saving and lending traditions — sou-sous, tandas — as a way to build wealth outside of the banking system,” she adds.

Gilliam discovered that the social savings circles in these underbanked and underserved communities often have a low default rate . The social factor is key. “People are more likely to keep strong financial habits when their peers keep them accountable,” she says.


If you are looking to start your own savings circle, enlist trusted friends and family. Emphasis on “trusted.” In 2020, the Federal Trade Commission issued a consumer alert about pyramid schemes tied to sou-sous.

Your group will need to determine the amount and frequency of deposits and the order of individual withdrawals. For example, if 12 members put in $100 per month and distributions occur monthly on a rotating basis for one year, who gets the first $1,200? It’s an important consideration because early withdrawals are essentially zero-interest loans, while later distributions are effectively interest-free savings plans.

A few savings circle apps have been developed in recent years, such as Esusu Savings and MyMAF, which manages lending circles set up through Mission Asset Fund. And later this month, Gilliam and a team of fintech developers in Washington, D.C., are set to release a savings circle and social banking mobile app called Wellthi. While group savings goals will be shared, funds in Wellthi will be tied to individual digital wallets, linked to a payment card and never commingled.

And it all began with that chance encounter when the Korean woman was looking to start a business in America.

“It really kind of changed my life, to be honest. And I had almost denied that woman a visa,” Gilliam says.


This article was provided to The Associated Press by the personal finance website NerdWallet. Hal M. Bundrick is a writer at NerdWallet. Email: Twitter: @halmbundrick.


NerdWallet: How to Save Money: 22 Proven Ways

Federal Trade Commission: A real or fake savings club?

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


(Facebook Photo/City of San Luis, Arizona)...
Associated Press

San Luis authorities receive complaints about 911 calls going across border

Authorities in San Luis say they are receiving more complaints about 911 calls mistakenly going across the border.
4 days ago
(Pexels Photo)...
Associated Press

Daylight saving time begins in most of US this weekend

No time change is observed in Hawaii, most of Arizona, Puerto Rico, the U.S. Virgin Islands, American Samoa, Guam and the Northern Marianas.
12 days ago
Mexican army soldiers prepare a search mission for four U.S. citizens kidnapped by gunmen in Matamo...
Associated Press

How the 4 abducted Americans in Mexico were located

The anonymous tip that led Mexican authorities to a remote shack where four abducted Americans were held described armed men and blindfolds.
12 days ago
Tom Brundy points to a newly built irrigation canal on one of the fields at his farm Tuesday, Feb. ...
Associated Press

Southwest farmers reluctant to idle farmland to save water

There is a growing sense that fallowing will have to be part of the solution to the increasingly desperate drought in the West.
19 days ago
A young bison calf stands in a pond with its herd at Bull Hollow, Okla., on Sept. 27, 2022. The cal...
Associated Press

US aims to restore bison herds to Native American lands after near extinction

U.S. officials will work to restore more large bison herds to Native American lands under a Friday order from Interior Secretary Deb Haaland.
19 days ago
(Photo: OCD & Anxiety Treatment Center)...
Sponsored Content by OCD & Anxiety Treatment Center

Here's what you need to know about OCD and where to find help

It's fair to say that most people know what obsessive-compulsive spectrum disorders generally are, but there's a lot more information than meets the eye about a mental health diagnosis that affects about one in every 100 adults in the United States.

Sponsored Articles

(Photo by Michael Matthey/picture alliance via Getty Images)...
Cox Communications

Valley Boys & Girls Club uses esports to help kids make healthy choices

KTAR’s Community Spotlight focuses on the Boys & Girls Club of the Valley and the work to incorporate esports into children's lives.
Fiesta Bowl Foundation

Celebrate 50 years of Vrbo Fiesta Bowl Parade magic!

Since its first production in the early 1970s, the Vrbo Fiesta Bowl Parade presented by Lerner & Rowe has been a staple of Valley traditions, bringing family fun and excitement to downtown Phoenix.
(Desert Institute for Spine Care photo)...

Why DISC is world renowned for back and neck pain treatments

Fifty percent of Americans and 90% of people at least 50 years old have some level of degenerative disc disease.
Got a savings goal? Consider forming a savings circle