The decision to open a joint bank account might not be as straightforward as you think. There are a variety of benefits and risks associated with joint bank accounts that all involved individuals should weigh before opening a new account.
Who Should Open a Joint Banking Account?
Joint accounts offer a new level of convenience and flexibility for the account holders that weren’t possible before. Many joint banking accounts are started by couples who move in together, get engaged, or are married. The sharing of a bank account is a big step for most relationships as it combines financials together and forces partners to manage money with another person’s perspective in mind.
Joint banking accounts can also be a great solution for helping someone manage their own money. Parents will often set up joint accounts with their children as they enter their teenage years in an effort to help teach healthy financial habits and money management. These same accounts are also helpful for individuals with aging parents who may need additional help overseeing their finances.
Another common reason for starting a joint bank account is for business partners to have equal insight and responsibility for the related finances. Entrepreneurs and business owners often have co-owners or other stakeholders who need access to banking information and funds for day-to-day operations to run smoothly.
The Benefits of a Joint Bank Account
- Convenience: The biggest benefit and most commonly cited reason for opening a joint banking account is the convenience it affords multiple individuals when managing combined financials. Now all involved parties have equal visibility and responsibility for the management of their money. This helps co-owners pay for joint expenses easier, increase their buying power, and more.
- Increased FDIC Insurance: Combined accounts ensure each co-owner is listed on the account, increasing the amount of money covered by the FDIC. For example, a joint banking account held by you and your spouse would be FDIC insured for up to $500,000 — which is double what an individual bank account is covered for.
The Risks of a Joint Bank Account
- Financial Disagreement: Everyone has their own idea of how to best manage finances. This also leads to every individual having a different relationship with money. Joint banking accounts can cause disagreements and strife between account holders if they cannot agree on a middle ground strategy.
- Lack of Privacy: Due to multiple people having access to the account, all account co-owners can see financial history and actions, such as payments, withdrawals, and balances. This level of transparency can make it hard for some account owners who wish to not have every banking action be able to be scrutinized or questioned.
- Equal Responsibility: A joint banking account puts all co-owners on the hook for any overdrafts or issues associated with the account. This means the account assets are open for seizing to creditors, liens, and lawsuits if other co-owners get into financial or legal troubles.
The American Bankers Association Foundation and AARP have produced an infographic to help people understand the risks of joint bank accounts.
FAQs
The Benefits of a Joint Bank Account
What is the disadvantage of joint bank account? ›
Cons of Joint Savings Accounts:
Potential Conflict and Disagreements: Joint savings accounts can sometimes lead to conflicts and disagreements, especially if there are differing financial priorities or spending habits among account holders.
Can you still withdraw money from a joint account if one person dies? ›
Most joint bank or credit union accounts are held with “rights of survivorship.” This means that when one account owner dies, the money passes to the surviving owner, or equally to the rest of the owners if there are multiple people on the account.
Is it a good idea to have a joint bank account? ›
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.
What's the best bank for joint accounts? ›
Summary of Best Joint Checking Accounts 2024
| Account | Forbes Advisor Rating | Annual Percentage Yield |
|---|
| PenFed Credit Union Access America Checking | 4.0 | 0.15% to 0.35% |
| EverBank Yield Pledge Checking | 3.8 | 0.40% |
| Capital One MONEY Teen Checking | 3.8 | 0.10% |
| SoFi Checking and Savings Account | 3.8 | Up to 4.50%¹ |
1 more rowSep 4, 2024
“Another pitfall of a joint account occurs if one person's excessive spending puts the account into an overdraft – a very expensive way to borrow. In this instance, both parties are liable for the debt, no matter who spent the money.
Can one person withdraw money from a joint account? ›
While each owner is granted equal access to the account, a few important points merit considerations. Once the joint account is established, any owner retains the right to withdraw funds or even close the account entirely.
Do joint bank accounts get frozen when someone dies? ›
Most joint bank accounts include automatic rights of survivorship, which means that after one account signer dies, the remaining signer (or signers) retain ownership of the money in the account. The surviving primary account owner can continue using the account, and the money in it, without any interruptions.
Does a joint bank account become part of an estate? ›
As long as the joint owner is not your spouse, the fair market value of the entire joint bank account will be included in the value of your estate. When the joint owner is your spouse, then only half the fair market value is included in the value of your estate.
Do I pay inheritance tax on a joint bank account? ›
Estate Tax Consequences
If the surviving joint owner is not a spouse, then the fair market value of the entire account will be included in the decedent's estate. If the surviving joint owner is the surviving spouse, then only 50% of the fair market value is included in the value of the decedent's estate.
Equal Responsibility: A joint banking account puts all co-owners on the hook for any overdrafts or issues associated with the account. This means the account assets are open for seizing to creditors, liens, and lawsuits if other co-owners get into financial or legal troubles.
Who pays taxes on a joint account? ›
Unless otherwise specified, all owners of a joint bank account are responsible for paying taxes on it.
Can I transfer money from a joint account to a personal account? ›
You can transfer money from the individual account to the joint account. You cannot transfer money from the joint account to the individual account.
What are the disadvantages of opening a joint bank account? ›
Drawbacks: Shared Responsibility: Joint accounts require a high level of trust and financial responsibility. Both account holders have equal access to the funds and can make withdrawals and transfers without the other's consent, which can lead to conflicts if not managed properly.
How much money should you put in a joint account? ›
Do the math on how much of your monthly or annual bills are shared, like housing, groceries, and childcare. Then, decide how much each of you will contribute to the joint account. Some might do a 50/50 split while others might make it proportional to each partner's income.
What are the rules for joint bank account? ›
Following are the Joint Bank Account Rules in India per the account mode. Joint: All transactions in the account must be approved and signed by all the account holders. If any one of the account holders dies, the account will be deemed inoperable, and the bank will pass on the balance in the account to the survivor.
Should married couples have joint or separate accounts? ›
Key takeaways
Couples who share expenses should consider a joint bank account to track spending. Even if both partners are different types of spenders and savers, joint accounts show you where your money is coming in and going out. Some couples may not enjoy the lack of privacy when everything is moved to one account.
Does joint account hurt your credit? ›
Does a Joint Bank Account Affect Your Credit Score? Using a joint bank account does not affect your credit score.
Can you get in trouble for taking money out of a joint account? ›
When you have a joint bank account, you don't need your partner's permission to take a withdrawal. You can remove funds from that account on your own, and your bank won't ask for verification that the other person on the account is okay with that transaction.
