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This popular kind of savings account isn't actually helping you save, says financial psychologist: Here's why

"Sub accounts are incredibly powerful."

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If you've been steadily employed throughout the last year, you might have been able to accumulate a decent amount of savings. At the height of the pandemic in April 2020, Americans' personal savings rate was 33.7%, according to the Federal Reserve Bank of St. Louis. In January 2021, it was 20.5%, almost triple what it was a year earlier, before the pandemic began.

This is what usually happens during economically turbulent periods, Brad Klontz, a certified financial planner and financial psychology professor at Creighton University, told Grow: "At the times when you feel like, as a nation, we are in a lot of financial trouble, savings rates go up. When we're feeling optimistic, when we are feeling like the crisis is over, savings rates plummet."

While having adequate savings is a good thing, there is one type of savings account you need to avoid: the "amorphous savings account." This is a savings account that has no goals attached to it, Klontz says. Here's why amorphous savings accounts aren't optimal, and better ways to make your money work for you.

Targeted accounts help you save for specific goals

When you start putting money into a savings account with no real plan for what to do with it, "psychologically you're not very conscious about that account," Klontz says.

This can result in you feeling more comfortable dipping into that account for daily expenses, because you have no attachment to it. "Before you know it, you're spending it in ways that don't necessarily align with your goals and values," he says.

Instead of having one big savings bucket, create multiple buckets within your savings accounts and categorize them by goal. These targeted "sub accounts" are "incredibly powerful," he says.

Visualizing the vacation you want to take or the party you want to have once pandemic restrictions lift can can help motivate you to save and keep you from dipping into your savings.

Sub accounts are incredibly powerful.
Brad Klontz
financial psychology professor at Creighton University

If you don't have an exact goal in mind, you can visualize your future, out-of-pandemic self, and continue saving for that person. This trick works for those who are trying to put away money for retirement, too, according to a 2011 study published in the Journal of Marketing Research.

For this study, participants were split into two groups. While one group was shown a picture of their current self, the other was shown a digital rendering of their face at age 70. The two groups were then asked how much money they would save for retirement. Those with that future self connection opted to save more.

If you don't feel connected to your future self, saving feels like a "choice between spending money today or giving it to a stranger years from now," according to the study.

Make savings accounts more effective by giving them labels

Once you come up with one or more goals, use them to label your sub accounts. This will keep you organized and create a personal connection with each account, Berna Anat wrote in Grow.

"I take no shame in nicknaming my bank accounts things like 'Adulting Dollaz Only' or 'Isabel's Bach 2K20,'" she wrote.

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Many banks let you nickname accounts, but it may be a hidden feature, so reach out to customer service and ask. Some banks, including Ally and Capital One, allow you to create buckets within each savings account. So in one account, you can have, say, a vacation bucket, wedding bucket, and a party bucket.

This creates a helpful deterrent if you find yourself dipping into your savings often. "Make a European 2024 vacation account, so there's an attachment to it, something that matters," Klontz says, as an example. Then, if you wanted to withdraw funds for an impulse buy, "you'd have to consciously go rob from your European vacation account, and it's a huge barrier for people to do that."

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