• Kale

What is a group savings account?

The new trend in saving money that you need to know about.

It’s pretty simple. Group savings is the process of saving in tandem with a spouse, group, family, or organization in a singular pooled account.

Typically these groups are not more than 100 members (and even 100 is a lot) and they are involved for various reasons.

Members can either “pool” their money together or attempt to do this via separate accounts and a little bit of trust. Pooling allows for significantly better transparency so that no one falls behind but does require that you register your group as an LLC or LLP (not that hard but it does take a bit of effort).

Don’t like the idea of everyone being able to see your contributions? There are ways to organize your group so only one person (possibly yourself) acts as admin for everyone else so discretion is very much possible. I’ll touch on this topic in better detail in a follow-on article.

Members can pool their money at just about any bank but must do so in a business savings account and not a personal savings account. The exception to this is “joint” accounts for spouses/couples but I wouldn’t recommend that route.

The best part of this is that once the money is pooled in the LLC and added to a bank account, you can (and should) make sure that you are getting a great deposit rate (APY) on those savings. This means periodically searching for rates (takes about 30 seconds — type in best business savings account rates), reaching agreement as a group that this is the right move, opening the new business savings account, and sending your money over to the better rate paying bank.

Business savings account rates are typically exactly in line with personal rates anyway (the current high as of 5.3.2020 on business savings accounts was 1.75%) so don’t worry about this minor nuisance.

Little differences in rates/APY can add up over time and I promise you it is much easier to keep up with the constant rate changes as a group than trying to do it solo.

Aside from simply earning way more deposit interest in perpetuity, you can now use the transparency provided in the group savings account format to make goals, plan, and save together.

This is the second huge benefit of group savings accounts.

Let's face it, it is almost impossible to keep a group on the same page when planning + saving for various life events (weddings/new baby/home purchase) or other goals (group trips/reunions/registry) when everyone is operating independently. Group savings is your only shot at avoiding these planning/savings headaches.

The best way to do this, for now, is via keeping track of contributions to the pooled savings account and actively (at least twice a month) updating a shared spreadsheet for progress.

Ex. John adds $200 to the pooled account for the upcoming family trip to the Caribbean — the shared spreadsheet is updated to show his contribution (possibly even as concise as +$200, John, Flights)

Yes, this is an effort. But recognizing that the little bit of time invested upfront on getting this whole thing started will pay off over the next 50 years your group is still going (hopefully even longer) is incredibly important here.

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