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The Joint Bank Account: What It Is and When to Open One

You might associate joint bank accounts with married couples or couples who live together. While those are common situations when a joint bank account can work, there are a number of other relationships that could benefit from a joint bank account. Joint bank accounts allow two or more people to own the account, assuming equal responsibility. It’s important to know all sides to a joint bank account, though, before signing up.

What Is a Joint Bank Account?

A joint bank account is a type of bank account that has more than one person on the account. Typically, you have the option to open any kind of account as a joint account. This includes checking accounts, certificates of deposit and more.

When you open a joint bank account, each person on the account has access to it. For example, each owner will receive checks and a debit card with a checking account. Usually, transactions made by one owner won’t require the consent of another owner. This means that both (or more) owners share the responsibility of maintaining the account. Successfully owning a joint bank account will include a lot of transparency between owners.

Many joint bank accounts include a “right of survivorship” feature. This states that if one account owner dies, the other owner will receive 100% of the account funds. This comes in handy when you want the money to go to the co-owner. But you’ll have to be wary of this feature if you want your money to go elsewhere after you die. The “right of survivorship” feature will override your will if you have one.

How to Open a Joint Bank Account

Opening a joint bank account is relatively easy. All you really have to do is go through the steps of opening a regular account, but choose the option of making it a joint account. When you open a joint account, don’t forget to provide the information of all the owners. This includes Social Security numbers, photo identification, addresses and more.

Depending on the account type and the institution, you may have the option to simply add someone to an existing account. The new owner will still have to provide the necessary information and documents.

Before signing on the dotted line, make sure you and the co-owner know the terms of the joint account. It can also help to make a plan outlining who will take care of what on the account. For example, if someone overdrafts the account, will you both assume responsibility? Or will the person who overdrafted have to deal with that themselves? Check with your financial institution about how they handle joint bank accounts.

When you open a joint bank account, you should still keep a separate account open. It will come in handy to have separate finances that only you have control over.

When to Open a Joint Bank Account

The Joint Bank Account: What It Is and When to Open One

Traditionally, joint bank accounts are opened by married couples. But it’s not only married couples who can open a joint bank account. Civil partners, unmarried couples who live together, roommates, senior citizens and their caregivers and parents and their children can also open joint bank accounts.

A joint bank account is a good way to deal with shared expenses, as with married couples or roommates. Instead of splitting a bill between two bank accounts, the funds can simply come from one joint account. Couples can also more easily budget their expenses with a joint bank account.  A joint bank account also provides a way for a pair to keep an eye on each other’s expenses, like with a parent and their child. This way, the child can gain some banking experience while the parent keeps watch.

Opening a joint bank account is a good idea for a number of situations. If you open a joint checking or savings account, you and your co-owner will share responsibility for saving and spending responsibly. That way, it becomes more of a team effort. Plus, pooling your funds together can give you access to certain benefits that come with a higher account balance. This will depend on the kind of account you open, but includes things like waived fees and higher savings interest rates.

When opening a joint bank account, it’s important to communicate with your partner. Together, decide on which financial institution you want to open an account with and what kind of account you want to open. Again, set specific responsibilities for each owner and action plans. Always make sure you remain communicative about the account.

Drawbacks of a Joint Bank Account

Along with a joint bank account’s many perks there are some risks you take on, as well. For starters, there is no protection in the event that one owner misuses the account. So if your partner bounces a check associated with the account without your knowledge, you are both held accountable even though you had nothing to do with it.

Also, one owner can withdraw a huge chunk of funds without telling another owner. Because joint bank accounts assume the owners communicate regularly, the bank won’t require approval for this kind of transaction. This is why it’s important to open a joint bank account with someone you trust. You should also still regularly check on the account.

Similarly, one person’s financial troubles can become both owners’ financial concerns. For example, if one owner gets divorced or goes bankrupt, the funds within the account will be seen as that person’s assets. That means that regardless of the other owner, the money is up for grabs. You and your co-owner will have to be honest and upfront about each of your finances to avoid a big financial disaster.

You could potentially see a bigger tax bill due to your joint bank account. If you’re both putting money into the account, that’s fine. But if you deposit money into the account, and your co-owner withdraws more than the $14,000 yearly limit, the IRS sees that withdrawal as a gift.

Lastly, while pooling assets together has its benefits, it can also have its drawbacks. For example, if you open a joint account with a college student, the joint funds will count towards their assets, possibly reducing their eligibility for financial aid. The same goes for an elderly co-owner who may rely on Medicaid long-term care.

Should You Open a Joint Bank Account?

The Joint Bank Account: What It Is and When to Open One

Now you know about the benefits and risks of opening a joint bank account. So should you open one? The answer to this will depend on your finances and those of your possible co-owner(s). Will you take on more risks by opening a joint bank account? Or will it benefit you entirely? Take a look at your debts, income, credit, etc. before you decide. Don’t forget to be honest and open with your potential co-owner(s).

Your personal preference also plays a big role in deciding whether to open a joint bank account or not. Do you value financial privacy and independence? Using a joint bank account means that all your transactions are there for your co-owner to see. It would be hard to keep your joint bank account activity a secret, which can be both a blessing and a curse.

Keep in mind that you can open a joint bank account and still keep your separate individual accounts. This way, you could pay for shared expenses or save toward shared goals like retirement with the joint account and keep some financial autonomy with your own separate accounts.

The Takeaway

A joint bank account is a solid financial option for a number of situations. It brings ease to roommates paying for shared expenses. It offers married couples a way to budget, save and spend together. Of course there are risks that come with joint bank accounts, that you will have to keep an eye out for. That way you and your co-owner(s) don’t get hit with high fees or taxes. Always maintain honest and open communication with a joint bank account to succeed.

Before combing your assets, it might be worthwhile to first sit down together with a financial advisor to ensure you’re both on the same page. The SmartAdsset matching tool can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and your goals. Then the program will narrow down your options to up to three financial advisors who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

Tips for Finding the Right Bank Account

  • Choosing the right bank account is a huge financial step and not just for joint bank accounts. Finding the bank or credit union you’re most comfortable with is a good start. That way, you know your banking experience is more likely to be a positive one.
  • You will also want to compare bank accounts. Comparing some of the best checking accounts and savings accounts will help you see what’s out there. You won’t want to settle for a low interest rate once you see that you can do better!

Photo credit: ©iStock.com/vm, ©iStock.com/PhotoInc, ©iStock.com/vm

Lauren Perez, CEPF® Lauren Perez writes on a variety of personal finance topics for SmartAsset, with a special expertise in savings, banking and credit cards. She is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. Lauren has a degree in English from the University of Rochester where she focused on Language, Media and Communications. She is originally from Los Angeles. While prone to the occasional shopping spree, Lauren has been aware of the importance of money management and savings since she was young. Lauren loves being able to make credit card and retirement account recommendations to friends and family based on the hours of research she completes at SmartAsset.
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