Key to increased savings a streamlined approach
Contrary to common belief and financial product marketing practice, new findings from American researchers suggests that keeping it simple with a single savings account may be the most efficient way to maximise your savings.
Finding the discipline to save money can be tough, especially as we enter the highest month of consumer spend for the year but a little insight into savings psychology could help you reach your savings goals sooner according to University of Kansas assistant professor Promothesh Catterjee.
"For years the conventional wisdom has been that spreading your money across various accounts encourages you to save," Chatterjee said. "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 one primary account rather than multiple accounts."
According to his findings, individuals will save more and spend less then they have a single account compared with multiple accounts. The findings run counter to conventional wisdom that people should spread their earnings across different accounts to increase their savings.
Chatterjee's research utilizes four separate studies that presented participants the opportunity to earn money across tasks and spend it on different products. The four studies collectively indicated a higher rate of saving among individuals who maintain one rather than multiple accounts.
"Basically people look for an excuse to spend, and having multiple accounts provides just enough vagueness to do the trick."
Of course, there are some individuals who are comfortable with their multiple accounts and would find it difficult or inconvenient to consolidate money into a single account.
"If you're really opposed to consolidating, you can reduce the vagueness of having money across multiple accounts by utilising software and services that provide a consolidated view of all of your accounts in one place," suggests Chatterjee. "This type of aggregate reporting could help reduce vagueness and enhance savings. But the take home message remains the same: consolidating multiple accounts into one account will help you save money "
Looking for a single savings account to rule them all? Compare savings account and find out where your savings can earn the highest interest here.