You can choose to save through formal, semi-formal or informal institutions, and in the form of cash or non-cash.
- Non-cash forms of saving are assets, such as land or animals that can quickly, easily be converted to cash, and generally retain their value. The land is less liquid than animals.
- Informal savings include saving cash at home, which keeps your cash very accessible and allows you to avoid the transaction costs associated with saving at formal savings institutions. This form of informal savings has two significant disadvantages: the temptation to spend the money and the risk of theft. You need strong discipline to both avoid spending these savings yourself and deny the pleas of other family members.
- Semi-Formal savings encompass group savings mechanisms, including rotating credit and savings associations (ROSCAs), Village savings and loan Associations, village banks, solidarity groups and self-help groups. The advantage of Associations is that each member receives a lump sum of money at one time, with no loan or interest payments.
Formal savings involve financial institutions, including banks, credit institutions, cooperatives or microfinance institutions, and offer another widely used option for saving cash. Savings in these financial institutions are generally safe and earn interest. They offer a range of savings accounts tailored to different financial needs. However, the requirements for opening and maintaining an account such as minimum deposits, user fees, and withdrawal requirements can be costly.