Very few people in the United States are familiar with something called a Sou Sou savings plan. It has several names, some are “SUSU”, “sou-sou”, “merry-go-round”, and “tandas” in Spanish.
These savings plans are not native to the US, they come from foreign countries and as more immigrants have migrated to the US it has become more commonly used in the US.
These accounts have grown in popularity across the years and continue to expand. As they become more popular it’s very important to take into consideration what risks come with a Sou Sou savings plan as well as alternatives to avoid taking the risks that Sou Sous bring.
What is a Sou Sou Savings Plan
To get right to the point, a Sou Sou savings plan is an informal rotating savings club where groups of people contribute money to one common fund and take turns on receiving the total amount within the fund on a predetermined basis.
Members must contribute to the fund, usually on a monthly basis. Every certain period, the total contributions are dispersed to a single member of the group. The recipient of the funds changes each time-period in a rotating fashion so that all members of the group are eventually recipients.
Any member who is not the last one to receive the funds must continue to contribute to the common fund even after receiving the money until the rotation reaches the last person.
There is no interest involved, nobody gains or loses more than they put in (ideally).
Sou Sous are not backed up by any type of insurance and are not specifically regulated by any governmental influences. The plans are organized by communities of people who usually know each other on a personal level.
Sou Sou savings rely heavily on the trust of the members within the club. Trust of the organizer to disperse the money correctly and ethically, as well as trust that each member contributes to the fund correctly and on time.
Risks of a Sou Sou Savings Plan
As said above, Sou Sous are based on pure trust. That’s the major flaw in this savings plan. Ideally, you want to know all the members of the Sou Sou, especially the organizer.
You need to make sure that every member pays their dues and that the organizer disburses the money ethically and correctly for everyone.
You cannot be 100% sure that all the members will pay on time, more than likely, the reason they’re part of this savings club is that they lacked the self-discipline to save on their own terms. So trusting their word on being able to pay their dues for this savings group is a risk on your part.
Since there is no governmental regulation or insurance like FDIC with a bank that will ensure that you get your money in case of collapse, if someone or something within the club defaults, there is no assurance that you will get your money when it’s your turn.
This risk is especially significant for the people who are receiving the money at the end of the disbursement cycle.
If for some reason the organizer does not disburse the money or commits some type of fraud, there is no law that protects you against that. You will lose that money indefinitely.
And if for some reason others stop paying their share of the money and you still haven’t gotten your money, there will be no way for you to have your entire share of the fund if you haven’t already received your disbursement.
Sometimes the organizer must take care of the problem is someone does not make their contributions. This is not always the case, though.
Also, this isn’t a risk… but when you save using a Sou Sou instead of something like a high-yield savings account, you not only miss the FDIC insurance, you also miss out on interest that could’ve been gained on your principal.
As you add more to a high-yield savings account and as your account earns more interest, it will earn more interest in the long run and it can add up to quite some extra money in your account without you having to do anything other than contributing to your savings account.
This is a major benefit that you miss out on by contributing to a Sou Sou instead of a high-yield savings account.
Benefits of a Sou Sou Savings Plan
Now, even though Sou Sous do not pay interest on your principal, and even though they don’t have any type of insurance to make sure you get your money in the case of collapse they do have some benefits.
These benefits are more psychological ones than anything else.
The benefits that a Sou Sou brings are the major push to make people who are not used to saving, save.
For example, some participants state that being part of a Sou Sou was more financially-effective because they feel an obligation to the other members of the group so they force themselves to pay into the fund on a regular basis.
Some of the participants go as far as to borrow money to make their contribution if they can’t make one at the moment. That way they continue to contribute to the fund without failing on the timing.
Even though it’s not a great idea and it is probably counterproductive to borrow in order to be able to contribute, it demonstrates the extremes that people will take to ensure that they are making their contributions on time because they feel that moral obligation to contribute.
This, in turn, forces them to “save” their money.
So, effectively, the benefit that Sou Sous bring to people is the moral obligation to pay-up, thus, forcing them to “save” money. Something very challenging for the typical American to do.
In essence, the whole point of a Sou Sou savings plan is saving money. If you aren’t the last recipient, your goal is to receive the money before you have to save it in its entirety.
So is the Sou Sou savings plan a good idea?
My personal answer to this question is a resounding ‘no’. But, as I say in several of my other articles, there is no one-size-fits-all when it comes to finance.
I think if a group of people who all know each other very well and who are terribly bad at saving money even after trying several times in the past come together to start their own Sou Sou, it could be a benefit to them.
They will have more of an impulse to save their money. Since they have never been able to save in the first place, this extra push to save money might be what they need
That being said, this group of people still runs a risk of losing money in the case of default and there is no governmental authority to ensure that all members get back what they put in. There is also the benefit of high-yield that you completely miss out on.
These are both very important flaws in this savings plan but to those who have no other way of saving, it can certainly work for you.
While I can acknowledge the fact that several people have always struggled with saving money, I strongly believe that this is a behavior that can be changed. I think that saving money can become an emotional priority if you really put your mind to it without the need of feeling a moral obligation to someone else.
In fact, you don’t even have to think about savings in today’s world… you can now have automatic deposits going toward a savings account on a predetermined basis without you needing to do anything other than setting up the automatic savings plan.
You can do with a savings account that not only backs up your money with FDIC insurance but also pays interest to you on your principal, thus, having you gain more money on your savings than you would in a Sou Sou savings plan.
So should you get into a Sou Sou savings plan? I would recommend looking at alternatives like a high-yield savings account… and if you struggle to save money, set up an automatic savings plan.
Just know that if you still choose to take the Sou Sou route, (I’ll say it again) you’re missing on the safety and leverage of your principal.
The choice is yours in the end.
If you have any questions please feel more than welcomed to leave them in the section below!