A new study in the May issue of Organizational Behavior and Human Decision Processes found people with one account were likely to spend less and save more than those with money in multiple accounts.
"For years, the conventional wisdom has been that spreading your money across various accounts encourages you to save," said Promothesh Chatterjee, an assistant professor at Kansas University's School of Business and one of the study's researchers. "Nowadays, the average American has multiple liquid accounts, typically 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."
The study adds basic banking philosophy and even tells customers the complication of handling several different accounts will be far outweighed by the benefits of having multiple accounts. Yet Chatterjee's research — which examined people's behavior from four different studies totaling 566 participantss — disputes the commonly held theory.
"Our proposition is opposite to the common current practice in the banking industry, which is to open multiple liquid accounts for new clients," the study reads. "The conventional wisdom being that greater number of accounts would result in greater savings for their customers."
Instead, Chatterjee said, individuals that kept multiple accounts demonstrated two theories of behavior —"motivated reasoning" and "fuzzy-trace theory" —and outspent their single account counterparts.
Motivated reasoning characterizes individuals who find spending more enjoyable than saving and are motivated to search for reasons to justify spending. The fuzzy-trace theory characterizes vagueness then enables them to distort available information and follow the desirable spending motives. Having multiple accounts provides that vagueness, as it is harder to keep track of where and exactly how much one has saved at any given time.
"Whenever there is an element of vagueness in the decision-making environment, people will utilize it to justify their buying decisions," according to the study.
"Basically, people look for an excuse to spend, and vague information facilitates this," Chatterjee said. "And having multiple accounts provides just enough vagueness to do the trick."
Chatterjee said the research may be valuable, because it opposes the banking norm of opening multiple accounts for clients, and it may provide information as to why Americans have such a hard time saving.
According to the study, the current national personal savings rate is estimated to be a meager 5%— and one's ability to save money appears to be independent of income and education level, in that high-income, college-educated U.S. households have just as much trouble saving money as low-income households with no college degree.
"Our inability to save is a national, near-universal issue," Chatterjee said. "Given that context, this type of research is important to lots of people."
The research also could have implications on a larger front, as today's economic climate, and the failure of several banks in the last few years has prompted people to spread their money across various banks to hedge against problems at certain institutions. The study would seem to indicate while it may be a risk to put all of one's funds in one account at one bank, it likely would increase that person's ability to see savings grow.
Chatterjee added for those who like having multiple accounts, they should try to reduce the vagueness of having money across multiple accounts by utilizing software and services that provide a consolidated view of one's money.
"This type of aggregate reporting could help reduce vagueness and enhance savings," he said.
--Written by Chris Metinko for MainStreet