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Here’s What You Should Know About Opening a Joint Bank Account

Bank Accounts

Here’s What You Should Know About Opening a Joint Bank Account

Forget making it Facebook official. Opening a joint bank account is the true way to show you’re committed.

OK, so not really. But for many married couples, long-term domestic partners, families and even roommates, joint bank accounts make budgeting and sharing bills easier to manage.

What Is a Joint Bank Account?

A joint bank account is much like any other bank account you open with your bank or credit union. You can use it to save money and earn interest, write checks and swipe a debit card to make payments, and even set it up for direct deposit and automatic bill pay.

So what’s different? You aren’t the only account holder. Joint bank accounts let multiple people (typically two, though some banks allow up to four) act as account holders. That means they have equal rights to deposit — and withdraw — funds and will be held just as responsible as you for overdraft fees.

Why a Joint Bank Account Might Be Right for You

The main reason people open a joint bank account is because they are married or domestic partners with shared expenses and shared savings goals. Sharing a bank account might make you a little more disciplined with your own spending and can help you form a team mentality toward saving for specific goals.

But romantic partners aren’t the only ones who open joint bank accounts. Sometimes parents will add children, like college students or young teens just learning the ropes of money management, to their accounts. Those with aging parents might be added to their parents’ accounts to make it easier to take care of medical expenses or trips to the grocery. If you trust your roommates enough to open an account just for rent and utilities contributions, it’s an easy way to take care of shared household expenses.

A huge pro of joint bank accounts is the financial power of combined money. Often, certain accounts will pay higher interest rates when you have more money in them. Reaching that total is easier with more than one contributor.

Potential Pitfalls of Joint Bank Accounts

Bankers beware: Joint bank accounts have a lot of downsides, so be sure you trust your co-account owner on a personal level and a financial level before opening.

For starters, if a relationship or friendship ends poorly, the other co-account owner can drain the account before you are able to freeze the funds (or withdraw them yourself). If your relationship is on rocky ground, a joint bank account is not a good idea.

Some partners who do not see eye to eye on spending and saving should consider separate accounts to avoid fighting.

Pro Tip

Instead of combining all your savings into one account, create an account for monthly contributions toward shared bills and keep the rest of your finances separate.

Another major con of joint bank accounts is what can happen if your co-account owner mismanages the funds. They may be solely responsible for the act of overspending, but the bank will hold both of you responsible for the resulting overdraft fees — and you’ll also be out all that spent money.

Joint bank accounts can also have a negative effect on your credit score. If the other account holder has bad credit, you will likely experience a drop in your own score.

Further, any funds in a joint bank account count toward both of your assets. That means, if one of the account holders files for bankruptcy, the money in the joint bank account is fair game for their creditors, even if you actually contributed most of that money. 

Just as frustrating, shared funds with your child in college could count against them in terms of financial aid while an account held jointly with someone on Medicaid could disqualify them from receiving benefits.

Finally, joint bank accounts can get messy when one of the owners passes away. Because of “right of survivorship,” all that money goes to the other co-owner, even if you had intended for some of it to be distributed to other family, friends or organizations via your will. 

And even if your intention is to pass on the money to the co-owner after death, the co-owner will still potentially have to deal with inheritance taxes, depending on the amount in the bank account.

How to Open a Joint Bank Account

If a joint bank account makes sense for you and your partner, parent, child or roommate, apply online or visit a branch of your chosen bank in person to open the account. The process is typically easy. Just be sure to bring:

  • Proof of identity, like your driver’s license or passport
  • Proof of address, like a utility bill
  • Your initial deposit (this can also be electronically procured from an existing account at another institution, if necessary)

You will need to fill out an application, and voila! You now co-own a joint bank account. You should receive a debit card, a checkbook and information regarding how the account works.

But before signing on the dotted line, ask a few important questions:

  • What happens if the relationship with the co-account holder ends? How do you freeze funds?
  • Can one person take out all the funds at once? Is it possible to limit withdrawals unless both/all parties are present?
  • Who is responsible for paying overdraft fees?

Considering an online bank for your new joint bank account? Check out our favorite online savings and online checking accounts for 2019.

Timothy Moore leads a team of editors and graphic designers at a market research company as his full-time gig. As a freelance writer, he writes about personal finance, careers, education, pet care, travel and the automotive industry. His work has been featured on, The Ladders, Glassdoor and The News Wheel.

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