The Pros and Cons of Having a Joint Bank Account with Your Partner

Are you thinking about opening a joint bank account with your spouse or partner? Are you wondering if this is the right idea at the present time?

Below, we run through the pros and cons of opening a joint account and how it may affect you both individually.

What is a Joint Account?

A joint bank account is one that is opened by two or more individuals or entities. For example, you and your spouse or you and your partner.

All of the individuals or entities named on a joint bank account have the power to manage it, which includes everything from deposits to withdrawals.

How Does a Joint Account Work?

A joint bank account gives everyone named on the account equal access to money, regardless of who deposited the funds.

This is what differentiates joint accounts from individual accounts. While spouses often opt for a joint bank account, the same can hold true of business partners and parents and children among others.

When is Opening a Joint Account a Good Idea?

There are many times when opening a joint bank account is a good idea, including but not limited to:

• If you share financial responsibilities — such as household expenses — with a partner
• Upon getting married
• When parents want to monitor their child’s spending
• When adult children want to help an aging parent manage their money
• When two or more people start a business together

While an individual bank account is always an option, there are times when a joint account makes more sense.

When is Opening a Joint Account a Bad Idea?

There’s no denying the benefits of opening a joint bank account, but there are times when this isn’t the best idea. Here are some situations in which it doesn’t make sense:

• You can’t trust the other person to responsibly manage funds in the account
• You have questions about your personal relationship, such as if you’re considering divorce
• If the other individual has a poor credit history and credit score
• If you don’t have a good reason to open a joint account

Should you have any concerns — such as those related to bank account mismanagement — it may be a bad idea to proceed. You need to protect your personal finances above all else.

Advantages of Opening a Joint Bank Account With Your Partner

There is no shortage of advantages of opening a joint bank account with a partner, business partner, or spouse. Here are some that you must consider:

Transparency

With a joint bank account, there’s full transparency between all owners. You can see what your partner is doing and they can see what you’re doing. There’s no ability to hide anything.

Speed

Separate bank accounts may bog you down, such as when paying household expenses. A joint account will bring speed and efficiency to your financial life.

Extra Insurance

Each co-owner of a joint bank account is insured up to $250,000 for the combined amount of his or her interests in the account.

Convenience

It’s more convenient to have a joint bank account, as it eliminates questions about available funds and spending. It also brings convenience in regard to money management and paying bills.

Equality

Equality in your relationship is important. A joint bank account gives you that. This isn’t something that you get with a separate account.

Teamwork

Along the same lines as equality, teamwork comes into play when you have a joint account. You must work together for the betterment of your account and personal finances as a whole.

Simple and Straightforward

There’s nothing complicated about a joint bank account. In fact, it’s so simple and straightforward that it’ll bring clarity to your finances. This holds true of both joint savings and checking accounts.

Easier to Budget

Budgeting is a big part of successful money management. A joint account makes it easier to budget for monthly expenses, as both individuals have full access to the account.

Builds Trust

Building trust in a relationship is easier said than done. Fortunately, small things such as opening a joint bank account can go a long way.

Shared Responsibility

With shared responsibility and transparency, you’re in a better position to prevent arguments about money. Both of you are responsible for all aspects of money management associated with the account.

Equal Ownership

No one person has more power than the other. A joint bank account provides equal ownership rights.

Disadvantages of Opening a Bank Account With Your Partner

While there are more advantages than disadvantages, you must still be aware of issues that could come to light. Here are some of those that you need to protect against:

No Individual Protection

There’s no individual protection with a joint bank account. Both of you are responsible for everything that happens.

Security and Privacy Concerns

There’s no security or privacy with a joint bank account. For example, it’s possible that your partner could withdraw all the money without your blessing. Just the same, nothing you do is private.

Potential for Arguments

Just as a joint account can help prevent arguments, it can also lead to disagreements. Arguments about money are common, so you should have a plan in place to protect against this.

Difficult to Sort Out if the Relationship Ends

This is particularly true if you’re not married. If you have any concerns about how you’ll split the funds in your account if you end your relationship, it’s best to opt for separate bank accounts.

Alternatives to a Joint Bank Account

You may come to the conclusion that a joint bank account isn’t the right solution. But you may also realize that you need some type of money management system in place. Here are some of the best alternatives:

Add an authorized user to an existing individual bank account

An authorized user has access to the account, but they’re not an owner. You still have full control, which means you can remove them from the account at any time.

Joint bank account with separate finances

Opt for a joint account and separate accounts. For instance, you can use your joint account to pay joint expenses.

View-only account

A view-only account gives another person the opportunity to view transactions, but they don’t have the power to manage the account.

Separate accounts

This one is simple. You open a separate account and your partner does the same. You never commingle your finances.

Joint Credit Card

A joint credit card allows both you and your partner to use it. This is often preferred to a joint bank account as it doesn’t give either of you access to cash. With this option, you’re likely to have more concerns about your credit score and credit history.

Comparing the Best Joint Accounts

It doesn’t matter if you’re searching for a joint savings account or joint checking account, there are some details to keep in mind during your comparison:

• The ease of opening the account
• If it’s best to choose a local bank or online bank
• The features of the account
• Account access
• The availability of money management tools

Legal Rules for Funds Held in a Joint Account

All joint bank accounts have two or more owners, with each owner having the power to deposit, withdraw, and manage the account.

Here are some rules that govern how a joint account works:

• Any account holder can close the account at any time
• Most joint accounts have a right of survivorship, meaning that if one person dies all the funds go to the other owner
• Joint bank accounts, especially savings accounts that earn interest, have tax implications

How to Open a Joint Bank Account

While the process of opening a joint bank account varies from one financial institution to the next, here are some basics:

Check Your Eligibility

Be sure that you and your partner are eligible to open a joint account at the bank of your choosing.

Know What You’ll Need to Provide

Make a list of the items you need to provide to the bank, such as proof of address.

Check Your Credit Score

Some banks may not accept you as a customer if you have bad credit.

Decide Whether You Really Need One

A joint account is not always the right solution. Look into your alternatives (see above).

Set Rules for How You’ll Use the Account

It doesn’t matter if it’s a spouse or business partner, set rules for how you’ll both use and manage the account. This can save you a lot of trouble down the road.

Consider How You’ll Communicate

How will you communicate in regards to how you use the account? Will you tell the other person every time you use the account?

Discuss How You’ll Manage Any Existing Debt

For example, if you have an existing car payment, you need to determine if you’ll use your joint account to pay for it.

Think About a Joint Saving Account

A joint savings account isn’t one that you use to pay bills. Instead, you use it to save money together, such as for future emergencies or a vacation.

How to Close a Joint Account

Any owner of a joint bank account has the power to close it at any time. To do this, you simply need to contact your bank so they can walk you through the process. Of course, it’s generally best to discuss this with your partner before taking action.

How to Manage a Joint Account

There’s no right or wrong way to manage a joint bank account. It depends on a variety of factors, such as the reason for opening it and your relationship with the other individual.

The best thing you can do is implement a plan of action before you and your partner begin to use the account.

Frequently Asked Questions (FAQS)

Now that you better understand the pros and cons of joint bank accounts, you’re likely to have a handful of questions. Here are some of the most common:

Can a joint bank account affect your credit rating?

Generally, a joint bank account shouldn’t affect your credit report or score any differently than a regular bank account. However, if you open up a joint account with someone who has a poor credit score, that might be a different story.

If mismanagement of the account results in unpaid debt, it could affect both of you.

What happens if you need to close a joint account?

Either owner of a joint account can close it at any time.

What happens if you need to divide the money held in a joint bank account?

There are no concrete rules, so it’s important to discuss this before opening an account.

Can I have a current account for myself, and a joint current account, with the same bank?

Yes. Explain to your bank what you want to accomplish and they can help you set everything up.

Does a joint account come with any financial protection?

Each co-owner of a joint bank account is insured up to $250,000 for the combined amount of his or her interests in the account.

Can you convert an individual account into a joint account?

Yes. Most banks allow you to do this, but you’ll want to check with them.

What happens if one account holder is mentally unfit?

If one account holder is deemed mentally unfit, the other owner can still maintain the account.

What happens if one account holder dies?

With the right of survivorship, the account goes to the other individual in the event of one account holder’s death.

Are joint accounts protected if the bank fails?

Yes. A joint bank account is FDIC insured up to $250,000.

How do overdrafts work on joint accounts?

Overdraft protection is available but check with your bank to learn more about getting this setup. One or both owners may need to opt-in depending on the type of protection.

How many people can use a joint account?

While a joint account requires at least two individuals, there can be more. Check with your bank to determine if there’s a limit as to how many people can be named on a joint account.

Can we open a joint account if one of us has a bad credit history?

Yes. You should still be able to open a joint account even if one individual has bad credit.

What’s the best way to use a joint bank account?

It depends on your relationship, goals, and financial circumstances. For example, one couple may use it to pay joint expenses, while another does so for saving money. Regardless, all owners have access to money in the account.

Final Thoughts

These are the advantages and disadvantages of joint bank accounts, along with other information that will help you decide if it’s right for you and your partner.

Take your time as you compare the pros and cons, ponder the potential for bank account mismanagement, and discuss moving forward with your partner.

The more information you collect and the more conversations you have, the easier it becomes to make an informed decision.