Is a merry-go-round worth it? The math of early and late payouts
Who really gains in a merry-go-round? Worked examples showing the early payout as an interest-free loan, the late payout as zero-interest saving, and inflation's effect.
Every merry-go-round pays out exactly what it collects: if twelve people pay GHS 500 a month, the pot is GHS 6,000 and each person receives GHS 6,000 once. So on paper nobody gains and nobody loses. In practice, when you receive the money matters a lot. This guide does the math so your group can agree on a fair setup. (New to the concept? Start with what a merry-go-round is.)
The early payout is an interest-free loan
Take a 12-member circle at GHS 500 a month.
The member in position 1 receives GHS 6,000 in month one, but by then has paid only GHS 500. For the next eleven months they keep paying GHS 500 and receive nothing back. In effect, the group has lent them GHS 5,500 at 0% interest, repaid in eleven equal instalments.
How much is that worth? A lender offering GHS 5,500 over 11 months at a flat 30% a year would charge roughly GHS 1,500 in interest. Our guide to flat vs reducing-balance interest shows how that kind of figure is worked out. That saving is the hidden value of an early slot.
The late payout is saving at zero interest
The member in position 12 pays GHS 500 every month and receives GHS 6,000 in month twelve. They have saved GHS 6,000 and got back exactly GHS 6,000, which is 0% interest.
Positions in the middle are a blend. Position 6 borrows for part of the cycle and saves for the rest. Across the whole group, the benefit to early members matches the cost to late members.
What inflation does
Cash is only half the story. If prices rise by about 24% a year (roughly 1.8% a month), the GHS 6,000 received in month twelve buys about as much as GHS 4,930 would buy in month one. Meanwhile the early member spent their pot at month-one prices.
| Position | Cash received | Value in month-one money (24% inflation) |
|---|---|---|
| 1 | GHS 6,000 | GHS 6,000 |
| 6 | GHS 6,000 | about GHS 5,490 |
| 12 | GHS 6,000 | about GHS 4,930 |
The higher inflation is, the bigger the gap between early and late slots. That's why order disputes become sharper when prices are rising quickly.
So why do merry-go-rounds work?
Because most members aren't trying to maximise interest. They want:
- a lump sum they could never build alone, because the money would get spent;
- commitment, since the social pressure to pay makes saving happen;
- no paperwork and no fees, unlike a formal loan;
- trust and support within a group they know.
For a late member, the question isn't "could a bank pay me more?" but "would I actually have saved GHS 6,000 without this?" For most people the honest answer is no, and that's the real return.
Making the trade-off fair
Your group can reduce the imbalance in several ways:
- Random order with rotation. Draw the order fairly, then reverse or reshuffle it in the next cycle. See choosing a fair payout order.
- Need-based priority. Give early slots to dated needs (school fees, a wedding) and let others volunteer for later slots.
- Bidding. Members bid a discount for early access, and the discount is shared with everyone else. Our guide to bidding merry-go-rounds and chit funds explains the method.
- Shorter cycles when inflation is high. A 6-month cycle halves the gap between first and last.
The bottom line
A merry-go-round is worth it when members value discipline and access to a lump sum. Keep the circle small, agree the order openly, and be honest about what late slots cost when prices are rising. If your group wants savings that actually grow, a savings-and-loan fund where interest on member loans comes back to savers may suit you better. See merry-go-round vs savings group.
Frequently asked questions
Does the last person in a merry-go-round lose money?
In cash terms no, because they receive exactly what they paid in. In real terms they can lose some value when inflation is high, because money received later buys less.
Why do people join late positions at all?
Discipline. Many members value being forced to save a fixed amount on schedule more than the interest a bank account would pay, especially if they would otherwise spend the money.
How can a group make late positions fairer?
Options include a bidding system where early takers pay a discount to the others, rotating the order in the next cycle, or giving late positions to members who choose them.
This guide is general information to help groups organise themselves. It isn't financial, tax or legal advice — rules for savings groups differ by country, so check with a qualified adviser for your situation.