Published April 12, 2018|6 min read
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Saving money isn’t easy for everyone. If it were, we wouldn’t have this horrifying statistic: 46% of Americans could not cover a $400 emergency expense. A lot of people use credit cards as their emergency plan, and as their plan for purchasing big ticket items, paying off the debt over time. While that works for some people, for others it’s a slippery slope into a world of constant red. The average American household has about $5,500 in credit card debt.
Tanda, an app by Yahoo Finance, wants to be an alternative to constant debt by combining the best of savings and the best of credit cards in one app. Tanda allows users to borrow and lend to each other instead of from a centralized bank. How does it work and is it actually better than traditional savings or credit cards? Read on to find out.
Based on the “rotating savings and credit associations” (ROSCA) concept, Tanda allows users to create “circles” of people who contribute a set amount of money every month. Each month, one member of the circle will take the entire pot of money contributed. When you join a circle, you can choose when you want to receive your payout – like a credit card, this means you can get the full amount of money before you’ve earned it.
There’s also a slight twist: if you elect to be one of the first two people who take money out of the pot, you have to pay Tanda a fee of 8% or 7%, respectively, of the payout. If you elect to take the last position, you get a bonus of 2% of the payout. Everyone in-between neither pays a fee nor gets a bonus.
A major part of the ROSCA concept is social pressure, and Tanda includes an element of that as well. Each member has a “trust score” between 1 and 100. Every time you make an on-time monthly contribution to your circles, you get one point. If you’re late, you lose three points. If you miss a contribution entirely, they suspend your account. The higher your score, the more money you’re allowed to save through circles. (If someone in your circle starts missing contributions or is suspended, Tanda will step in and put up the money itself.)
You start with a trust score of 50, and you’re limited to saving $250 total. Once you hit 60 points, you can save up to $500, and so on and so forth up until you save a total of $2000. Based on your score, you may also be limited to only taking later positions in a circle, to ensure that you’re not just going to take the money and run.
Unfortunately, there’s no easy way to jump into larger savings circles. When you first join Tanda, you’ll see plenty of circles that are designed to help new users build their trust score as quickly as possible. These circles are typically set on a two-week cycle instead of a monthly cycle. I opted to instead join one with a monthly cadence, contributing $31.25 each month until October, when, as the person in the last position, I get a payout of $255.
Tanda is designed so that anyone with a bank account can build a trust score separate from their real life credit score, but I would like to see Tanda allow users to grow a trust score by doing something other than contributing money. In the current system, you basically have to use Tanda as your primary savings method in order to growth-hack your way to the biggest circles. Tanda could instead allow users to connect other savings accounts or apps, or investment accounts, in order to prove some amount of financial solvency.
Besides the process of joining your first circle, you won’t actually interact with the app all that much. Each circle has a chat available to them, which I only discovered while writing this trying to figure out what else I could do with this app. (One person wrote a message when the circle first started and no one responded.) Despite being based on a very social form of saving, the Tanda app is not very social. There’s no way to connect with friends, so you’re pretty much always saving with strangers, and the rules of the saving circle aren’t enforced by members of the group or “society,” but by a centralized power that also acts as a safety net.
Tanda can be a good way to get a sum of money upfront for a big purchase without having to sign up for a credit card. If you need the money right now, taking a one-time hit of 8 or 7% is considerably lower than the average credit card interest rate, which can range anywhere from 13% to 23%. If you plan ahead a few months, you can get the money with no fee, which is comparable to using a 0% interest credit card responsibly.
However, I do think that if you’re the type of person who can make regular contributions to a Tanda circle, you’re likely the same kind of person who can make regular payments to pay off a credit card.
Paying off a credit card, meanwhile, contributes to more important “trust score” – your credit score. While credit scores, like Tanda’s trust score, are proprietary calculations run by private companies, they are at least accepted at more than one financial institution. If you ever try to buy a house, no one is going to be looking at your Tanda trust score.
Of course, there is a huge psychological difference between putting money into a savings circle versus using a credit card. A lot of folks are tempted to use credit cards for other big purchases before they pay off the first purchase, and removing temptation is one of the first steps to paying off big credit card debts. If you’re recovering from or trying to break a bad credit card cycle, Tanda can help.
Tanda is also a relatively good short-term high-interest savings plan if you get in that coveted last spot. The best high-yield savings accounts are still tapping out at around a 1.50% APY, and most folks’ savings accounts will have much, much lower interest rates than that. If you have a bit of extra income and want to funnel it into Tanda, you can make a small profit off of the experience.
If you’re primarily looking at Tanda as an interesting way to save money, you might also be interested in just opening a high-yield savings account and setting up a regular transfer.
There are also apps like Qapital, which make regular contributions to a savings account based on rules you set up. For example, you can set a rule to save the spare change in every transaction or to save every time you post to Instagram.
If you’re primarily looking at Tanda as a way to get a short-term loan without needing credit, you may be interested in our article on getting a loan without having any credit. You should also check out lenders like Earnest and Upstart, who can help you get lower rates by looking at information other than you credit score.
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