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A joint bank account can make your financial life easier and less complicated if you manage your money with another person, such as a spouse or partner. A joint savings or checking account offers many everyday banking conveniences, but there are some factors to consider before opening one.
Key takeaways
- Joint bank accounts are an ideal option for couples, business partners, and parents with and children who want to share access to their money, but it's important to only open an account with someone you trust.
- Joint bank accounts offer many benefits, such as convenience, a larger account balance, and more FDIC insurance coverage, but they also have potential pitfalls such as overdrafts and a lack of privacy.
- When opening a joint bank account, both account holders must provide a government-issued ID and personal information. To close the account, both parties must provide signatures or written permission.
What is a joint bank account?
A joint bank account is an account shared with another individual for things such as paying the bills, depositing paychecks or saving for a vacation or down payment on a large purchase, such as a house or car.
Most often, joint accounts are held by one person and a spouse or partner, family member or business partner, but it’s possible for two people to open a joint bank account together (and in the case of a bank account for a minor, a parent and their child).
How do joint bank accounts work?
Joint bank accounts work similarly to other bank accounts. Joint checking accounts work like checking accounts, letting you write checks and use a debit card. Joint savings accounts work like traditional savings accounts, keeping your money safe and paying interest.
The primary difference is that both people who own the account have full control over it. Each account owner can get a debit card, write checks and make purchases. Both account holders can also add funds or withdraw them from the account.
The money in joint accounts belongs to both owners. Either person can withdraw or spend the money at will — even if they weren’t the one to deposit the funds. The bank makes no distinction between money deposited by one person or the other, making a joint account useful for handling shared expenses. But a joint bank account should only be opened with someone you trust, since that person has equal control over the account’s funds.
Pros of a joint bank account
Although joint bank accounts can be useful for anyone who wants to share access to their money, they’re particularly beneficial for these reasons:
Convenience
Joint bank accounts make it easy to pay bills and track expenses, as each account holder can see the balance and add money to the account. If you pay for utilities, groceries and other joint household expenses, you could use the account to streamline bill payments by linking the account to your online banking service.
A potentially larger account balance
Because there are two account holders, joint accounts can have a larger balance than individual accounts. This could help you earn more interest on savings or avoid penalty fees.
More FDIC insurance coverage
You have insurance coverage at banks that are insured by the Federal Deposit Insurance Corp. (FDIC) (and at credit unions insured by the National Credit Union Administration) for up to $250,000 per depositor, per insured bank, for each account ownership category. Because joint bank accounts are opened with two individuals, each account holder gets up to $250,000 of FDIC coverage, potentially bringing your total coverage to $500,000.
Facilitating collaborative decision making
A joint account can be a useful tool for partners looking to save for a down payment on a home, plan a wedding or save for a shared future. A joint account makes it easy for both account holders to deposit money and make withdrawals, allowing each person to feel like an equal participant. In relationships, this can improve communication and encourage each partner to get involved in financial decisions.
Assisting elderly parents with financial management
If your parents are getting older, they may need some help with financial management, such as paying bills, reviewing bank statements and tracking expenses. Setting up a joint account with your parents will allow you to give money to them when they need it and allow you to help manage their finances.
Overseeing a child’s spending
If you’re a parent with a child who is leaving for college, it may be smart to open a joint bank account with your child. The account gives you access to the account so you can transfer funds to your child or check their bank statement to see their finances. However, it also allows your child access to the account so they can learn to handle their own finances and pay bills.
Cons of a joint bank account
Joint bank accounts also have their fair share of cons. Here are a few of the potential pitfalls you should keep in mind before opening a joint bank account.
Potential for overdrafts
With a joint bank account, both parties have unrestricted access to any funds in the account, which could potentially lead to misuse or mismanagement. For example, if one person withdraws more money than there is in the account, the other partner will also be on the hook for any overdraft fee.
Trouble if your relationships ends
When you split up with a partner, having a joint account can make things complicated. If you have an account with a friend, family member or your partner, you may want to consider closing the account and opening a new one if the relationship ends. Not only will you want to remove the person as joint owner of the account, you’ll also want to avoid any arguments over how to divide the funds.
Subject to creditors
Another downside of joint bank accounts is that both parties are responsible for any debts the other person may incur. This means that even if one person loses a lawsuit and owes money to a creditor, the other person is liable for the debt as well.
Lack of privacy
Because both you and the other account holder can see each other’s transactions and financial activities, it can be harder to keep gifts secret. Since joint bank accounts make it harder to keep secrets and can reduce privacy between partners, it can put a strain on the relationship. If you have a joint account, discuss boundaries around spending and saving with the other account holder. Make sure you are both on the same page about how the money will be used and what information is off limits.
Is a joint bank account right for you?
For many joint account owners, sharing the responsibility of managing money comes down to one personal characteristic: trust. If you’re planning to share a bank account, think long and hard about who you share it with.
If, for example, you share an account with someone who has trouble sticking to a budget, you could run the risk of seeing your money in the account being withdrawn faster than you can say “balance inquiry.” Only open a joint bank account with someone you trust implicitly because they’ll have access to the funds you deposit and financial information of that account.But opening a joint bank account can be a win-win situation, especially for two people who are on the same financial wavelength. “A joint bank account makes sense – and can make things easier — for those that incur expenses jointly or have common savings goals, such as a down payment on a home,” says Greg McBride, CFA, chief financial analyst for Bankrate.
Some examples of times when a joint bank account makes sense are:
- Couples who manage their money together and share household expenses
- Adults sharing a joint bank account with their elderly parents
- Business partners sharing a joint business account to cover expenses and payroll
- Parents opening a joint account with their children to oversee their savings as they learn positive money habits
How to open a joint bank account
Opening a joint bank account is fairly straightforward. You can either select the “joint account” option on an application or add a co-applicant after filling in one person’s details. Each co-owner must provide a government-issued ID and some banks may require proof of address.
The application will also require the personal details of each account holder, including their full name, date of birth, Social Security number and contact information.
Not all banks or credit unions offer joint bank accounts, so if you’re interested in opening one, make sure the bank you choose does so before signing up for an account.
You may also want to discuss with your partner or other potential account holder what happens to the account after one of you dies. For example, if you name your partner as a beneficiary on your life insurance policy but then both of you die in an accident, the life insurance payout might go directly into the joint account. If you don’t want that to happen, you could update your beneficiary.
Finally, it’s important to note that joint bank accounts are not a substitute for a will. If you open a joint bank account, you must still create a will or trust that details how your assets should be distributed after you die. Otherwise, state law will determine who will inherit your assets.
How to close a joint bank account
When you have a joint bank account, you need to consider more than just your own finances. If you need to close the account, you’ll have to work with the shared account owner and follow these steps:
1. Discuss with the other account holder. If an account holder has changed their mind about having a joint account and wants to quit, you’ll need to discuss it, particularly if you have other shared finances.
2. Withdraw all money. You will want to withdraw all money in the joint bank account before closing it. However, before withdrawing the funds, both account owners need to discuss the fund breakdown and agree on how much they’ll withdraw as their respective allotment.
3. Close the account. Some banks require both account owners to close a joint account, providing written permission, though many banks allow for just one of the account holders to close the joint account. Review your account agreement and the bank’s policy first. If you don’t have a separate, individual bank account to move your funds into, you can open one in your name before closing the joint account.
Who pays taxes on a joint account?
If you and your joint account holder are married and file one tax return, all you have to do is include the interest in your tax filing. If you file separately or aren’t married, things get more complex, depending on which state you live in. Check with a tax advisor if you have questions.
Another thing to consider if you have a joint bank account with someone who isn’t your spouse is gift taxes. If you deposit a significant sum to a joint bank account and your joint account holder makes a large withdrawal, it may trigger gift taxes. For 2023, the annual gift tax exclusion is $17,000, so the trigger will be pulled only if the joint account holder withdraws more than $17,000 from the account without making any deposits. Consult with a tax advisor for advice, should you have questions.
Bottom line
There are risks involved in opening a joint bank account, including the risk that one account owner goes rogue and withdraws all the money, or the risk of collections activity. Joint bank accounts nevertheless have their place and work for a wide range of consumers — especially couples who share household finances.
Whether to open an account with another person is a personal choice. Just make sure you know the pros and cons, and that you approach any decision to open a joint account with caution.
– Bankrate’s René Bennett updated this article and TJ Porter contributed to a previous version of this article
