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.”