Optimizing Your SACCO Membership: Share Capital vs. Savings for Maximum Returns

When considering the best strategy for maximizing your returns in a Savings and Credit Cooperative Organization (SACCO), it’s crucial to understand the dynamics between share capital and savings. While both components are essential to your overall financial strategy within a SACCO, there are distinct advantages and limitations to each.

Share Capital vs. Savings: Where Should You Invest?

For most SACCOs, the dividend yield on share capital is significantly higher compared to the interest on savings deposits. For instance, SACCO XYZ might offer a return on dividends of 15%, while the rebates on deposits might be around 10%. This difference suggests that if your goal is to maximize returns, investing more in share capital could be the wiser choice.

However, it’s important to consider the liquidity of your investments. Share capital in a SACCO is non-withdrawable and non-refundable. You can only recover your share capital when exiting the SACCO, and even then, you must find a willing buyer for your shares. On the other hand, while savings in the Basic Operating Savings Account (BOSA) are also typically non-withdrawable during your membership, they are refundable when you leave the SACCO, albeit with a 30-day notice period.

The Role of Savings in Loan Eligibility

Your savings play a critical role in determining your loan eligibility within a SACCO. Higher savings can increase your borrowing capacity, as SACCOs often use your savings as collateral for loans. Therefore, while the return on savings might be lower compared to share capital, maintaining a healthy savings balance can be advantageous if you intend to utilize the SACCO’s credit facilities.

The Benefits of SACCO Loans

SACCO loans offer several advantages over traditional bank loans, including:

1. Lower Interest Rates: SACCOs typically lend at an average interest rate of 12% per annum, which is generally lower than bank rates.
2. Fixed Interest Rates: Unlike banks, the interest on SACCO loans is not affected by fluctuations in the Central Bank Lending Rate, providing more stability.
3. Reducing Balance Method: Interest on SACCO loans is calculated on the outstanding principal, meaning the interest you pay decreases over time.

Choosing the Right SACCO

When selecting a SACCO, consider one where you can easily find guarantors—typically among your colleagues, friends, or relatives who are already members. This will simplify the process when you need a loan, as many SACCOs require guarantors.

SACCO Membership Beyond Loans

If you don’t intend to use SACCO credit facilities, joining a SACCO can still offer benefits, such as:

• Access to Friendly Loan Terms: Even if you don’t plan to borrow now, having the option can be advantageous.
• Diversification: Investing in a SACCO can diversify your financial portfolio, providing a balance between high dividend returns on share capital and stable interest on savings.

Do You Need Guarantors for a SACCO Loan?

SACCOs offer various options for securing a loan, including:

• Self-Guarantorship: Your savings can serve as collateral if they exceed the loan amount.
• Guarantors: Other members can co-sign your loan.
• Collateral: Physical assets can also be used as security.

Conclusion

In summary, whether you should focus on share capital or savings depends on your financial goals and needs. If maximizing returns is your primary objective, increasing your share capital might be beneficial. However, if access to loans and financial flexibility is more important, maintaining substantial savings is advisable. Understanding these dynamics will help you make an informed decision and optimize your SACCO membership.