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Why Multiple Bank Accounts May Be Bad for You

Why Multiple Bank Accounts May Be Bad for You

If you're looking for ways to save money, and who isn't, there's new research that suggests that if you're trying to save more and spend less, consolidate all those bank accounts you have into just one. That's the thinking of Promothesh Chatterjee, an assistant professor from the University of Kansas and a team of researchers from the University of Utah.

“For years, the conventional wisdom has been that spreading your money across various accounts encourages you to save,” Chatterjee said in a prepared statement.

Many people have a combination of checking and savings accounts. “But our research finds this is the wrong strategy to encourage saving. We find that individuals are more likely to save if they have only one primary account, rather than many accounts.”

Researchers looked at four separate studies that included more than 500 people in total. All four presented participants with the opportunity to earn money and spend it on different products. The four studies collectively indicated a higher rate of saving among those who maintain one account versus those that have multiple accounts.

The big question though is why? According to Chatterjee much can be pinned on two things. With “motivated reasoning,” people find spending more enjoyable than saving and are motivated to search for reasons to justify spending. In such situations, vagueness enables them to distort available information to follow desirable spending motives. Having multiple accounts provides that vagueness, according to Chatterjee. “Basically, people look for an excuse to spend, and vague information facilitates this. Having multiple accounts provides just enough vagueness to do the trick.”

That's the view from academia, what do other experts say?

Quite frankly, Linda Sherry, director, national priorities for Consumer Action, says she is, “Puzzled by this study because we have seen automatic transfers from checking to savings accounts work very well to help people save.” However, she does not recommend that savings accounts be linked to ATMs or debit cards (just the checking account) as this removes the possibility that people with withdraw cash for impulse buying.

Then too, multiple accounts can be helpful for reaching a specific goal, points out Alex Navarro, senior vice president and private financial advisor with SunTrust Investment Services. “Separate accounts allow you to view a growth or decline in savings separately from daily spending activity. This can lead to greater clarity and enhanced tracking if you're working towards a specific savings goal.”

Many of the accounts at Wells Fargo, particularly its checking packages, are designed to provide increased value and convenience for customers as they increase their banking relationship with Wells Fargo, explains Lisa Westermann, assistant vice president of corporate communications for Wells Fargo. For example, the bank offers discounted rates on home equity lines and loans for its checking package customers. “Customers can be better served and save time and money, if they bring all of their financial services to one trusted provider that knows them well,” she adds.

Readers on the DepositAccounts.com voiced their opinions, “I don't think the researcher considered maximizing interest rates. If you have just one bank account, it's very likely you're missing out on higher interest rates.”

Another reader wrote, “It's all about psychology. If you're a spender, then yes, you spend more with more accounts, if you're a saver, then you may save more with multiple accounts.”

However, there are some advantages of having one primary account. “The downside of multiple accounts is keeping track of where you have stashed your cash,” says Edgar Dworsky, founder of ConsumerWorld.org.

Says Navarro, “Using a single account offers a consolidated view and the simplicity of having all your information in one place. Typically fees are lower on accounts that maintain a larger balance, which may be easier to achieve with one large account, instead of several smaller ones.”

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jshannon   |     |   Comment #1
So keep you money in 0.00000001 % accounts? ...lol. Those "experts" are wrong. This website would not exist if it were not interested in "rate chasing", however you want to define the phrase.
Anonymous   |     |   Comment #2
The so called experts are always wrong. They are paid to study irrelevant issues and collect the money.

My local bank does not pay interest at all, my internet banks pay me 1-2% on my idle money.

One account is good for the people on welfare only.

I can not believe reading such stupid posting from Sheryl.
Wil   |     |   Comment #11
#2: Sheryl's articles are usually fairly good. But this one, however, reminds me of Miranda.
Anonymous   |     |   Comment #3
i put my money where i can get the best rates, local or across usa, and i don't care if it's bank or credit union, beside if you ladder your cds, it most likely various banks or credit union.
Anonymous   |     |   Comment #4
This study seems almost nonapplicable to retirees and also seems to overestimate the relative importance of a checking account. Being retired, I have laddered CDs in several financial institutions because of the rates offered at various times by these different institutions, a savings account in an online bank, and a checking account in a credit union. I use my checking account infrequently, largely because all my recurring monthly payments (utilities, internet service, health club charge, television bill) are simply automatically deducted from the checking account or one of my two credit cards. I agree 100 percent with the expert who advised not to link a savings accounts to an ATM (to me, it's taking too much of a risk), so my conclusion for the issue of multiple accounts is that, in the case of retireees, they will likely benefit from having financial accounts in several places.
agoodrate   |     |   Comment #5
If you want your money to double every 6000 years, keep your money at wells fargo
OldGuy   |     |   Comment #6
The researchers are obviously unaware that there is a large population of actual savers in this country, mostly seniors, who want to achieve the highest possible returns with the backstop of FDIC/NCUA insurance.  The researchers remind me of Ben Bernanke, who thinks it's still 1937.
paoli2   |     |   Comment #7
Personally, I can excuse this particular article because the title says "May" be bad for you".  I only keep my necessary savings account at my local bank.  Any others I have are only due to credit union rules but they are not really something I use for my needs.  If I only used "one" bank or credit union I could never even get the 2% rate I need.  Experts don't seem to live in the real world with the rest of us. 
Anonymous   |     |   Comment #9
The so-called "experts" are, in reality, idiots.  But they do offer those of us who know what's up the opportunity to LOL, and that's a positive contribution.  I mean, some of the stuff these "experts" write is hilarious!  
Wil   |     |   Comment #10
If there were ever an article not appropriate to its audience, it's this one. I agree with all of the previous posts. The "experts" are probably paid by the banks for their opinions anyway.
my2cents   |     |   Comment #14
According to experts, 36.126457% of all statistics are made up...
Anonymous   |     |   Comment #15
Is it not  Sheryl suppose to be a financial expert?
If she post those opinions, it suggests to me that she agrees with them.

Now, the US taxpayers pay billions of dollars for research and expert opinions, anything from how to s c r e w  a light bulb to why the night awl mates only at night. And those studies have been going on for decades on our expense. If you just read some of those expert opinions, you would think they apply for idiots or brain dead people only.

And the question pops up, why listen to any of those phony money suckers expert, the answers lies in the brain washed people, who support such ideas and take it for granted. I bet if a fool reads Sheryl artical, 90% of them will close all the accounts and keep just one, as per instructions of Sheryl’s experts. and those are the people who blindly believe the media and the liberals and act like an army of idiots (zombies)  and vote for who ever promise them more benefits.
scottj   |     |   Comment #16
This is about as useful as the Government funded $2.7 million study to understand why lesbians drink too much.
Anonymous   |     |   Comment #17
If you only have one account and the bank freezes it.....
Wil   |     |   Comment #18
#17: Very good point! Or, if the bank fails and the FDIC doesn't find a buyer. You would have no access to your money until you get the check in the mail, and then there might possibly be a hold on the funds from that check placed by the bank at which you would have just opened a new account.
paoli2   |     |   Comment #19
I don't think Shery is supposed to be a financial expert.  The info Ken has about her just states she writes financial articles basically.  This would mean she can find information from others and share them with us. We don't have to agree with the articles.  I certainly don't agree with the article and a lot of others I have read over the years about how to handle my own finances.  I had to work out a system that was best for me and my family.  That's what financial planning is all about.  Learn the basics for yourself and figure out what works best for you.  I read many posts on here I disagree with but I still enjoy knowing what others think and what they do about their own finances.  We can learn from each other if we don't close our mines to what we believe.

 BTW, if Sheryl does have a college degree in Economics or Finances etc. I would be less inclined to take heart to what is written.  I personally prefere to hear from those who are "living" with their finances in these uncertain times and what they are doing to survive.  This is why all the posts are important to me. 
51hh   |     |   Comment #21
See also this thread as a reference:


The issue for such an article, as many have pointed out, is that it generalizes "bank accounts" to a single rule (multiple accounts may be bad).  Each of us has our own financial situation and needs.  Maximizing interest earning, as Ken pointed out in the referenced thread, is a common one.  Some may open CDs and need a checking/savings account to go with the CDs.  Some have HELOC, 0% balance transfer credit card, low-rate loan, etc., etc., etc. 

Take me for example, I have numerous RCAs, which cannot be consolidated into a single RCA due to the $25K limit for each account.  I have BofA (checking, savings, HELOC) accounts for the low-rate HELOC (2.24%) and convenient ATMs.  I have NFCU due to the 0% balance transfer for tis credit card and $100 bonus for Roth IRA.  I have several CDs and member savings account with SFCU and Evolve CU.

I earn good money out of these multiple accounts, no risk for over-spending, and, thank you very much, I manage them well on a daily basis.

Others may be concerned about fraud risk and consider simplicity as their top priority.  A single account may suit their need perfectly. 

So to ask what is the optimum number of bank accounts one should have is similar to ask how much one wants to spend for a meal; it is a meaningless question since the obvious answer is: To each her/his own or YMMV.

Wil   |     |   Comment #22
51hh: You make a fair case that the article's advice may be appropriate for some people, the example you gave being those concerned about fraud. But what if the one-and-only account falls prey to fraud? Then the account would be frozen, and the depositor will not have access to his own money, and that could last some time. So I think it is dangerous for anybody to have only one account. I think the words "one primary account" in the article easily gets lost, particularly when you get to the last sentence, where the important qualifier "primary" is dropped. My original point, about this article being inappropriate of this particular audience (DA members and "guests") is proven by practically all the comments before yours, and even yours is qualified.
Anonymous   |     |   Comment #23
It's not about saving money, it's about options.  I deal with 5 banks and each one has its own strengths and weaknesses.  For example, I have Bank of America where I do most of my bill pay activity.  For some reason, they won't pay one of my payees electronically but mails a paper check.  I pay that account with Chase who will, but that bank doesn't support e-bills at all for any payee.
51hh   |     |   Comment #24
Hi Wil,

I beg to differ (even if I am in the minority): My point was that each one has her/his own style and needs.  For example, My wife does want me to reduce to a single checking account one of these days; solely for simplicity.  It is her preference and I am in no position to debate her out of her choice; if you know what I mean:-) 

As for the fraud/account frozen issue, she (i.e., we) will have no problems with that since she will have plenty of money in other places; no, not under the mattress; e.g., 401K, IRA, cold cash at home safety box.  It is not that smart to keep all of one's money in a single banking account.  In fact, I would not have much in the single account.  The checking account only serves the purpose of billpay, getting cash from ATM, and check depositing (just my case). 

 Anyhow, I still claim to each her/his own. 



Wil   |     |   Comment #25
51hh: I got the point of your original post, about each person having his/her own needs. As for your second paragraph, how can you possibly know that? There are many people who: (1) don't have a 401(k), and even those who have one cannot withdraw from it without a tax penalty if under 59.5, and it is generally a bad idea to borrow from a 401(k); (2) Ditto for an IRA, unless it's a ROTH IRA, and even then it will take time to transfer the funds, either by mailing a check or setting up an electronic transfer (which will take more time than usual, because if we're talking about someone having had only one account, which then became inaccessible, an account at a new bank will have to be opened first, and then the link will have to be established before a transfer can be made), and in either case the "new" bank will put a hold on the funds; and (3) don't keep much cash at home. The reason for needing access to funds fast is for paying bills. Exactly how is someone supposed to do that from a retirement account, unless there's a holding with check-writing privileges (and often those are subject to minimum dollar amounts, so what if the bill is less than that?). And just try paying a bill, like a credit card, with cash. C'mon, are you serious? Your reply doesn't take into account that there are millions of people who have nothing but a bank account. So I maintain that it is potentially dangerous to have only one account, and that everyone should have an account in at least one other bank or credit union.
Wil   |     |   Comment #26
51hh: Okay, upon rereading, you were talking specifically about yourself. So maybe you could get away with only one account, though are you seriously considering closing all of your rewards checking accounts?! But there are many people who are not like you, so I'll qualify what I wrote: "almost everyone should have an account in at least one other bank or credit union."
moneysaver   |     |   Comment #27
Leaving aside for a moment whether there's any merit in general to the conclusion of this research, it's clearly NOT an applicable notion for most if not all of the readers here.

The readers here are generally those who are focused on savings and trying to earn the best return on their funds in a safe way. For example, over the past few years, if someone here had limited themselves to just one RCA account, they would have been very disadvantaged because of accounts lowering their interest rates and then having to move all one's funds each time.

Whereas, probably like most of us here, having multiple accounts gives us flexibility and a better ability to adjust to and cope with the downward spiral of account interest rates in recent years. Lose one good rate? No problem, just ACH your funds to one of your other accounts that hasn't yet fallen.

And not have to go through a month or two long process of opening a new account from scratch. And not having any place in the meantime to earn a decent return on your funds.

I understand the general point, that being, like people having multiple credit cards are more likely to run up balances because they have those cards. But when it comes to bank accounts and the readers here, having more checking and savings accounts more than likely means we'll do a better job of maximizing our returns.

Anonymous   |     |   Comment #28
Ken, drop Sheryl, she puts bad name on your excellent site.
Anonymous   |     |   Comment #31
Personal Savings 101 - "Don't put all of your eggs in one basket".