People who are married or who share expenses for some other reason must make some decisions about how to handle their finances. They may choose to maintain individual accounts or open a joint account that both parties may use. The decision is a personal one and there’s no one correct answer that suits everybody. With that in mind, here’s what you need to know about joint accounts, with nine pros and cons to consider.
What is a Joint Bank Account?
A joint bank account is an account with more than one owner. In many cases, joint bank accounts are used by people who live together, whether they are roommates, partners, or spouses. Parents may also open joint bank accounts with their children. The names of all joint owners are listed on the account and everybody who owns the account has access to the account balance and features.
Joint bank accounts have the same features as individual accounts and may include the following:
- Debit cards
- Interest or dividends
- Overdraft fee protection
Joint bank accounts may be checking or savings accounts and may be used for a variety of purposes.
How Do Joint Bank Accounts Work?
Joint bank accounts work in the same way as single-owner accounts with one key difference: more than one person has access to the funds in the account. All parties listed as account owners may deposit or withdraw funds, use ATM cards, view balances, transfer money in and out of the account, and so on.
People who have joint bank accounts may use them for all shared money, but that’s not a requirement. Sometimes each owner has a personal account that they use for their own money. The joint account is used for shared expenses. For example, if a couple moves in together, they may each maintain separate bank accounts and open a shared account. They can transfer money to the joint account for shared expenses such as rent, utilities, groceries, and other items.
How Many Joint Owners Can Be on a Checking Account?
The most common number of joint account owners on a joint bank account is two because they are often used by married or cohabiting couples to pay for shared expenses. However, it is possible to have more than two owners on a joint account.
The most important thing to keep in mind if you have more than two owners of an account is that the financial institution where you open the account will act on the assumption that everyone on the account has equal ownership of the money in the account. For that reason, you should not open a joint account with anyone you don’t trust.
9 Pros and Cons of Opening a Joint Bank Account
The decision of whether to open a joint bank account requires careful consideration. Here are nine pros and cons to keep in mind.
Pros of Joint Bank Accounts
- Convenience. It’s easy to pay joint expenses such as your rent or mortgage, utilities, or groceries—or to save money for joint expenditures such as a down payment or a family vacation—when you share an account. There’s no need to transfer funds or write separate checks because everything is in one place.
- Transparency. One of the top causes of arguments in relationships is money. With a joint bank account, there’s complete transparency about how much money you have, how much each party is spending, and what they’re spending money on. Transparency can facilitate honest conversations that lead to good financial decisions. It can also prevent one partner from being blindsided by the other partner’s spending habits in the event the relationship doesn’t work out.
- Trust. It takes a lot of trust to combine your finances with somebody else’s. Having a joint bank account that you co-own facilitates trust because you’re sharing your money and its use. Each party will have the peace of mind of knowing that their financial situation is driven by trust and mutual understanding.
- Access. Because joint bank accounts are equally owned by all parties, there’s no need for complicated legal maneuvers in the event that your spouse or partner becomes incapacitated or dies unexpectedly. The surviving partner will have full access to the couple’s money, making it easy to pay ongoing expenses without complications.
- Oversight. Parents who open joint accounts with minor children have access and can monitor their child’s spending and saving. A joint account can be extremely useful for the purposes of teaching kids about how to use money responsibly.
Cons of Joint Bank Accounts
- Loss of independence. Prior to opening a joint bank account with a spouse or partner, most adults are accustomed to having financial independence. They can spend their money how they choose. Opening a joint account may mean that there are limits to what they can spend without discussing it with their partner.
- Exposure to partner’s debt. If one partner is carrying a lot of credit card debt or has a high student loan balance, the money in the joint account may potentially be seized in the event of a default or serious delinquency.
- Lack of privacy. While transparency can be a good thing, having a joint account means that you may not be able to surprise your partner with a birthday gift or vacation, since they can see how you spend money in the joint account.
- Financial vulnerability. The worst-case scenario would be if a relationship fell apart and one of the people drained a joint account without the other owner’s knowledge.
When Does It Make Sense to Open a Joint Account?
Here are some scenarios when it might make sense to open a joint account instead of maintaining (or in addition to maintaining) separate accounts:
- You’re moving in with a partner or spouse. The most common scenario that pushes people to open a joint account is moving in with a significant other or getting married. Whether both partners are working or not, having a joint account can simplify payment of household expenses and serve as a cornerstone of financial transparency.
- You want to teach a child about money. It’s important to teach children about responsible money management at an early age. Opening a joint account with a minor child allows parents to maintain oversight of their child’s money and savings while still offering the child some independence and agency in how they spend their money.
- You need to share expenses with roommates. In college and beyond, a lot of young people rent apartments or houses with their peers. In such cases, having a joint account for household expenses can be hugely helpful and prevent disagreements about late payments and other issues.
You should not open a joint account if you haven’t had a conversation about money with your partner, roommate, or child. All parties whose names are on the account need to understand their rights and responsibilities.
How to Protect Your Finances if You Have a Joint Checking Account
Before you open a joint account with anybody, it’s important to take some steps to protect yourself financially.
Have an Honest Conversation About Money
First, you’ll need to have an honest conversation about your finances. That means disclosing any outstanding debt, talking about spending habits and issues, and determining whether you want a single joint account for all your money or a separate joint account that you use solely for household expenses. Some couples prefer to set up automatic transfers to a joint account each month instead of having their pay deposited automatically.
Agree on Spending Limits for the Joint Account
One of the most important things you can do is to agree upon a spending limit for joint money, beyond which you will talk to your partner about the expenditure before you purchase anything. Couples may choose to put a spending limit of $500 or $1,000, something that allows for some independence without draining the account.
Make Sure All Parties Have Access
All parties who own a joint account must sign the paperwork, but do not open a joint account unless all parties have access to online banking, ATM cards, checks, and any other items related to the account. A joint account is also a joint responsibility.
Check Your Account Regularly
If you have a joint checking account, we suggest checking your account regularly. Sadly, there are circumstances where one partner takes on the majority of the financial responsibilities in a relationship and in such cases, the other partner may be blindsided by spending they didn’t know about. It’s always a good idea to understand your joint finances and ask questions if there’s anything that you don’t understand.
Keep a Separate Emergency Account
Finally, you may want to consider maintaining a separate emergency account, particularly if you’re worried about a partner’s spending habits. A separate emergency fund can provide some peace of mind and provide for you in the event that a partner’s debt or spending leads to a lower-than-expected balance in your joint account.
Are You Ready to Combine Your Finances with Leaders?
Opening a joint bank account may be useful if you share household expenses and want to have full transparency about your combined finances. The nine pros and cons we’ve listed here will help you evaluate your options and decide whether a joint account is right for you.
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