Lending circles, explained
Lending circles (also called rotating savings groups, or by many traditional names around the world) let a group of people save together and take turns receiving a lump sum. Here's how they work, an example, and the risks to understand before joining one.
Everyone agrees the terms
How many members, how much each pays each month, and the order people receive the pot.
Everyone pays in each month
Each member pays the same amount into the pot, every round.
One member takes the pot
Each round, one member receives the whole pot. The circle ends when everyone has had a turn.
Example: six members, $100 a month
| Month | Everyone pays | Pot | Who receives it |
|---|---|---|---|
| Month 1 | $100 each | $600 | Ana |
| Month 2 | $100 each | $600 | Ben |
| Month 3 | $100 each | $600 | Chloe |
| Month 4 | $100 each | $600 | Dev |
| Month 5 | $100 each | $600 | Eli |
| Month 6 | $100 each | $600 | Fatima |
Each member pays $600 in total and receives $600 once. Ana gets the money soonest, like an interest-free loan from the group. Fatima receives it last, like saving with a commitment. No interest is earned or charged. An illustrative example.
The risks
- Someone stops paying. If a member receives the pot early and then stops paying, the others lose money. Informal circles have no legal protection.
- Scams. Be very wary of strangers online inviting you to a "savings circle" or "gifting circle"; some are pyramid schemes.
- No interest. Money in a circle doesn't earn interest like a savings account.
Safer ways to take part
- Only join with people you know and trust well.
- Write the terms down, and keep a record of every payment.
- Consider circles run by established nonprofits, some of which report on-time payments to credit bureaus.
- Ask your credit union about savings clubs and small-dollar loans as alternatives. See credit unions.
General educational information, not financial or legal advice. We don't run or recommend any lending circle.