If you share expenses and savings goals with another person, you might be looking for ways to make managing money together a bit easier. One tool that may help is a joint bank account. But before you open one, it’s important to understand how they work and the potential risks.
What Is a Joint Bank Account?
A joint bank account is an account (such as a checking or savings account) shared by two or more individuals with equal access to the funds. Joint bank accounts are often used by married couples, but they can also be helpful to family members, business partners or any other group of people who need to share financial responsibilities.
“Having a joint account can make things easier if you share bills with another person so that you can see all income and spending in one place,” says Kendall Meade, a certified financial planner at SoFfi. “However, it is important to have full trust in that person as they have access to your money now.”
What Are the Requirements for a Joint Bank Account?
To set up a joint account, Meade says you will need identification and a few personal details for both account owners, including date of birth, Social Security number and current address. If the account has a minimum opening deposit requirement, you’ll also need that money on hand to fund the account.
Who Should Have a Joint Account?
There are a number of instances when having a joint bank account could make sense. Some examples of people who might want one include:
- Married couples: It’s common for couples to join finances once they get married. While not all their bank accounts need to be shared, spouses often choose to have at least one or two joint bank accounts for shared financial responsibilities. It simplifies the process of paying for shared expenses such as the mortgage or rent, utilities and groceries.
- Dependents or students: Parents might open a joint account with a child who is in school or a dependent to provide some financial support, monitor their spending and help them learn about money management.
- Elderly parents: As people age, it can become more difficult to manage finances on their own. Seniors are also more susceptible to scams and fraud. So adult children sometimes open joint accounts with their elderly parents to help them manage their finances, pay bills and monitor their accounts for any unusual transactions.
Can an Unmarried Couple Have a Joint Bank Account?
Although joint bank accounts are often associated with married couples, Meade notes that you can open a joint account regardless of marital status.
It’s up to you and your partner if and how you want to combine finances. “There are three main strategies that I see couples use: separate, combined or hybrid,” Meade says. However, if you do decide to combine finances as an unmarried couple – even if it’s just one account – you’ll want to keep in mind how that affects ownership of your shared funds and what might happen if you split up.
Who Owns the Money in a Joint Bank Account?
Both owners of a joint bank account own the money in it equally. That means you have the ability to deposit and withdraw funds as you wish – and so does the joint account holder.
Since both people have equal ownership and access to the money, it’s important to set boundaries regarding how the account will be used. Although this setup can make it easier to save for a shared goal and manage expenses, it can also be a source of tension if you and the joint account holder don’t agree on how each of you handles the money.
Pros and Cons of Joint Bank Accounts
A joint bank account can be convenient, but it’s not for every person or situation. Before deciding if you need a joint bank account, consider these major pros and cons:
- Convenience. Joint accounts make it easier for two people to handle shared expenses, including mortgage payments, utilities, groceries and insurance. Instead of splitting each bill or reimbursing one another, expenses can be paid directly from the joint account.
- Simplified budgeting. It can also be easier to track household income and expenses when they flow through a single account.
- Shared financial goals. Couples or family members can save collectively for shared financial goals, such as vacations, purchasing a home or retirement.
- Transparency. Both owners of the joint account have the ability to monitor account activity.
- Easy access. In case of emergencies or if one account holder is unavailable, the other account holder has immediate access to the funds.
- Lack of financial independence. Some people might feel that a joint account takes away their autonomy when it comes to managing money. After all, deposits and withdrawals are visible to both parties.
- Potential for disagreements. Differences in spending habits or financial priorities can cause tension. And if a couple decides to separate or divorce, dividing the assets in a joint account can get complicated and even contentious.
- Risk of mismanagement. Since both parties have access to the money in a joint account, one person could overdraft, spend irresponsibly or even deplete the account, and the other account holder would have little recourse.
- Creditor access. If one party has unpaid debts or legal judgments, creditors can potentially access funds in the joint account, even if the other party deposited most or all of the money.
- Impact on financial aid or benefits. For seniors, having a joint account with an adult child or another individual could affect eligibility for certain government benefits. Similarly, for college students, a joint account with a parent might influence financial aid calculations.