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What Is A Stokvel?

Sometimes it’s easier to start exercising with a gym buddy and stokvels are similar. They allow you to save money in a group. If you find it difficult to put money away each month, stokvels may be the perfect way to get you started. What is a stokvel and how do they work? 

Stokvels have been around for a long time now and they’re uniquely South African. The term “stokvel” goes back to the 19th century when English settlers described their auctions as “stock fairs”. During these fairs, farmers and labourers would sometimes pitch in together to purchase livestock.

In 1932 the very first stokvel was recorded, since then we’ve come a long way.

It has been recorded that R44 billion is saved annually in stokvels across South Africa. According to Thobela Mfeti, more than 11 million South Africans are members of a stokvel.

How does a stokvel work

A stokvel is a savings pool where a group of individuals contribute an agreed-upon monthly amount. The group have full control of how they would like to use that money. Two common methods are to pay out monthly or annually. The group can make monthly pay-outs, or they could keep investing their savings and get a sump sum at the end of the year.

The funds in the stokvel offer each member in the group an equal and fair benefit. So if your group decides to include R1 000 each month per member, and the group has 5 people. That R5 000 is up for grabs equally to everyone.

But before you get too excited. The terms of the stokvel is usually discussed and agreed upon in advance. The group has to decide what their goals are for saving the money. The money could be split and used as the group decides.

The main purpose of a stokvel is to have a financial support system.

Being a member of a stokvel is voluntary, and usually, members are introduced to the stokvel on a personal recommendation. Which makes it easier for these stokvels to have an informal agreement.

But that could have its implications. Informal agreements are not secure and members who have access to the money could potentially walk away with it all.

It’s not uncommon to find stokvel groups with their contracts in place. This helps form structure and security for all members of the stokvel.

Different types of stokvel

There are different of stokvel options you choose from, but the main investment vehicles include savings stokvel, property stokvel, funeral cover stokvel and investment stokvel.

Savings stokvel

The savings stokvel is widely used among South Africans. The primary purpose of a savings stokvel is to save as much money as possible as a group. The members decide on a cycle when the funds should be released.

Each stokvel uses its money differently. However, saving stokvels are commonly used to purchase groceries in bulk or to help fund household expenses.

Property stokvel

A property stokvel makes property investment more accessible to those who would like to get in the game but can’t afford to purchase a property.

Property investors get together and pool in their finances to invest in a particular property or purchase land for commercial, industrial or residential development.

Check out the Property Stokvel Investment Club if you would like to find out how to start a property stokvel. 

Funeral cover stokvel

According to Sally MatukuI and Edwell Kaseke, burial stokvels are known to provide material and non-material support to families in the event of a death.

Funeral cover stokvels became popular when workers migrated to the gold mines to secure a better future.

During this time families could not afford the costs of funerals. In particular, families could not afford to transport the body to the rural areas where cultural traditions and customs took place.

This led to mineworkers forming burial stokvels among themselves.

The stokvel usually includes a coffin and transportation costs of the body.

Investment stokvel

Stokvel investments accumulate their gains from stokvel investment options.

Members of an investment stokvel contribute to the stokvel on a monthly basis and allow their capital to accumulate in business ventures.

The future of stokvels

Stokvel groups that have been around for more than 5 years are more likely to get adventurous with their investments. Groups that have been around for longer have a stronger bond among members, which allows them to take more risk and explore new investment opportunities.

According to Business Insider SA, stokvel groups that have been around for longer tend to form multi-purpose stokvels.

For example, some grocery stokvels may provide some funeral cover for their members. Stokvels could invest some of their excess savings in bonds, trusts or property.

Although stokvels offer a great way to get into the habit of saving with the support of a group, they can sometimes be unreliable. Therefore banks have stepped up and offered security to stokvel groups.

Banks have become more approachable in their stokvel options over the years.

Opening a stokvel account with a bank provides members with the security they don’t get with informal stokvels.

Stokvels accounts

Stokvels have become so popular among South Africans that even banks offer stokvel options.

Let’s compare stokvel accounts.

Standard bank stokvel account

Standard Bank Stokvel Account

Benefits

  • Unlimited deposits, with immediate access to savings
  • Deposits and withdrawals at any branch
  • First 5 branch or ATM deposits are free
  • Interest rate based on the account balance
  • Interest calculated daily and paid out monthly
  • Transfer part or all of the balance to other investment accounts
  • No account fee if the balance is more than R5 000
  • Capital is guaranteed

Fees

  • Cash deposit fees apply
  • No monthly fee if your monthly balance is above R5 000

Interest rates

Balance Monthly Rates (Nominal)
R0 – R 249 1.30%
R1 000 – R9 999 1.65%
R10 000 – R14 999 1.90%
R50 000 – R99 999 2.40%
R100 000 and above 3.15%

What you’ll need

  • At least 5 members in the stokvel
  • Requires 2 to 4 signatories
  • ID copies
  • Proof of residence not older than 3 months

FNB stokvel account

FNB Stokvel Account

Benefits

  • No monthly account fee
  • Get access to your savings immediately
  • Free inContact messages to all signatories
  • Competitive interest rate based on the invested amount

Fees

  • Cash deposit fees apply
  • No monthly account fee

Interest rates

Balance Monthly Rates (Nominal)
R1 – R 999 0.25%
R1 000 – R19 999    2.75%
R20 000 – R49 999 4.50%
R50 000 – R69 999 4.55%
R70 000 – R99 999 4.60%
R100 000 and above 4.65%

What you’ll need

  • ID copies
  • Proof of residence not older than 3 months
  • Group’s Constitution detailing the nature of their operation

Nedbank stokvel account

Nedbank stokvel account

The Nedbank stokvel account is the same as a group savings account, however, the stokvel account offers additional benefits to the member.

Benefits

  • 10% on grocery or school supplies when shopping at selected stores.
  • R10 000 burial cover for each member (R20 per month per member).
  • Zero account maintenance fees.
  • Access to a Nedbank pay-as-you-go account on the Nedbank Money app, with no monthly maintenance fees.
  • Easily add or remove members using USSD cellphone banking.

Fees

  • Zero account maintenance fees.
  • Ask a Nedbank consultant if any other fees apply.

Interest rates

  • Available on request at any Nedbank branch

What you’ll need

  • A minimum of R100
  • ID copies
  • Proof of residence not older than 3 months
  • Copy of the stokvel constitution
  • Proof of stokvel address
  • Copy of the minutes of the stokvel meeting when deciding to open a stokvel account

The wrap-up

Most stokvel members use their earnings for specific future needs. They raise funds for short- and medium-term savings to pay for debt repayments, emergency savings, education, groceries, clothing or other reasons.

Every stokvel group has their own reasons as to why they need a stokvel account.

Stokvels are great for individuals who are struggling to save on a monthly basis or for stokvel groups who use those savings on a frequent basis.

Stokvels are not attractive for investors who want to see a return on investment over a long period.

Stokvels are not an investment vehicle, they are a savings vehicle.

Here’s why.

Inflation in South Africa is around 4.7% in 2020, which means you’re actually losing money if you keep your stokvel going for too long.

If you have a stokvel of R10 000 with FNB you’ll be earning 2.75% in interest.  You’ll be losing 1.95%, or R275, of your total savings. Which might not sound like a lot, but if you’re losing money, you’re doing it the wrong way.

If you’re perusing a stokvel account, remember that inflation will eat up your money, so don’t leave it in an account over the years.

A good strategy would be to use a stokvel as a way to get you in the habit of saving, once you’re comfortable with that, move your money in a fixed deposit account where you’ll earn interest above inflation.

If you want to see how your money can grow from R850 to a Million by only using interest, check out our Compound Saving article.

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