Personal Finance 

Can You Save More by Consolidating Bank Accounts?

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SavingsNew research out of the University of Kansas’s School of Business is showing that those who consolidate their savings into a single account, rather than spreading it out across several, encourages saving. Led by assistant professor Promothesh Chatterjee, the study was actually four separate studies with a total of 566 participants. In these studies, participants could earn money for doing things and spend it on products. They discovered that those who maintain one account versus multiple accounts had a higher rate of saving. The theory was that people are predisposed to spending money, rather than saving, and that this is facilitated by vagueness. If you have multiple accounts, it’s not readily apparent how much you’ve saved. When you know exactly how much you have saved, you are less likely to spend the money.

So the issue isn’t so much one bank account versus five, it really comes down to knowledge and understanding how much you’re saving. It’d interesting to find a way to do a study in which you replicated this scenario but offered them a Mint-like financial aggregator that collected all that information for you and find out the impact of that knowledge.

That said, how can you use this information to your advantage? This is the hard part, I don’t think you really can in this specific case. This is a lot like those studies in which researchers showed that kids who had their parents read to them as children had better language and literacy skills. It suggests a link but we are often warned about not mistaking correlation with causation.

I believe the same holds true here. The question is ultimately about awareness and knowing your financial situation. If something like multiple bank accounts creates enough vagueness that you’re spending without a budget or without concern for your long term financial planning, then consolidating probably won’t help you. The type of person who checks their bank accounts on a regular basis and reviews their financial plan won’t be derailed because he or she has more than one bank account. The person who doesn’t check won’t have their spending deterred even if all their savings are in one account.

If you don’t think this is helpful, why did you share it? The real lesson in all this is that simplifying is crucial. Vagueness loves complexity because the more complex your situation is, the easier it is to skip a close look and just go with your gut.

Consolidating accounts does help the person who is in the middle – checks their accounts on a semi-regular basis but isn’t all that diligent about it. They take a quick peek every few months just to make sure things seem OK. That person will benefit from having just one account, rather than five.

Simplifying your situation, however, will always help you. If you only have one bank account, then you only need to review one bank account each month. You’re less likely to skip that task because you don’t feel like logging into a half dozen accounts. You’re less likely to miss fraudulent charges on your credit card if you use just one or two. Simplifying may not necessarily help you save money but it can make your life easier and make it less likely you miss important things like fraud.

(Photo: Philippe Put)

{ 8 comments, please add your thoughts now! }

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8 Responses to “Can You Save More by Consolidating Bank Accounts?”

  1. I have a bunch of accounts, but I know how much I save. Having less accounts wouldn’t cause me to save any more or less, but I’m pretty educated about my finances while most others, unfortunately, probably aren’t.

  2. Shirley says:

    A simple spreadsheet with monthly totals manually updated would surely do away with much of the vagueness and afford a quick look at overall totals and possible rewards gains and account comparisons.

  3. Many people like to have separate accounts as envelopes–this has never really appealed to me. I have no problems having virtual wallets and keeping my money in one place!

  4. We have savings accounts with two institutions – a small one at our main bank and then several with USAA. However, at USAA we have five accounts and they’re targeted savings. It’s fairly simple for us and we have automatic transfers each month to fund them.

  5. We have savings accounts with two institutions – our main bank and with USAA. We just have one account with our main bank but we have five with USAA. They’re targeted savings accounts and we have automatic transfers set up to fund them each month.

  6. I’m like Lance…I do have a couple of accounts and I do check them often. I’m not sure if I’d save more if I consolidated, but I can see how it could. I consolidated some of my retirement accounts recently (to Vanguard)and seeing the bigger balance in one account encouraged me and made me feel like I’m on the right track. Those who are not great with finances may be motivated to save more when they see how much they’ve saved. A lot of times saving is mental for people, so while it may not work for some people, it definitely would for others.

  7. admiral58 says:

    I would assume the more you have in the account, the more you want to save more money

  8. Sally says:

    Having accounts at multiple banks enables one to choose which bank/credit union offers the highest CD interest rate to their customers. Works well when laddering CDs.

    Also helps one to place a limit on spending by retaining only a minimum balance in the primary account then transferring monies once a month or as required.

    Should accounts be consolidated then I would have little to no bargaining power when seeking a higher CD interest rate. Quite evident some banks simply do not appreciate their customers deposits while others welcome any and all deposits.

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