Is a Joint Account Something You Should Consider with Your Partner?
Even in the healthiest of relationships, discussing money and handling finances can cause stress. Perhaps you and your partner are thinking about having a joint bank account but are concerned that it will become too complicated. Alternatively, you may be leaning toward separate accounts but are afraid that this will make managing your joint expenses harder. Understanding what a joint bank account is and how it works might help you make better financial and relationship decisions.
What is a Joint Account?
A joint account works similarly to a regular banking account, with the exception that it is owned by two or more people. You can pool your money by opening a joint account. This is useful for both saving (you can save toward common goals like a new home or a vacation) and spending. A joint account allows you and your partner to pay common household bills such as a mortgage, car payments, utilities, and groceries from the same place.
Withdrawing cash, writing checks, and making online payments from the same account also allow you to observe how you spend money. This can help you budget as a couple. With account activity available to both of you, there may be less temptation to splurge on unnecessary products or make covert purchases.
Opening a joint account can also allow you to take advantage of features that you would not have access to as an individual account holder. This is because pooling your money may assist you in meeting the minimum balance requirements that qualify you for benefits such as lower maintenance fees, a higher interest rate, or rewards.
How to Open a Joint Account?
If you decide to go this way, opening a joint account is the same as opening an individual account. Both you and your partner will have to submit information and identification. You may also be able to add one partner to an existing account of another. As co-owners, you will be able to access and withdraw cash without the consent of the other. Also, you will be able to speak with the bank about the account without the consent of the other.
Once you have created your account, you can determine how to manage and monitor it. This includes whether you want to sign up for online banking, who will receive account alerts, and whether you will have shared or individual online banking profiles.
What Do I Need to Open a Joint Account?
In order to open a joint bank account, all account holders must fill out the necessary account application. Applicants also have to provide a valid government-issued I.D. (Social Security card, driver’s license, state-issued I.D. card, passport).
Types of Joint Accounts
Either or Survivor
The vast majority of joint accounts are of the “Either or Survivor” type. This is due to the fact that these can be accessed and managed by either of the account holders, i.e. the primary and secondary account holders. If one of the account holders dies, the account balance can be transferred to the “survivor” account holder.
Anyone or Survivor
This is similar to the previously described joint account. However, this time more than 2 people can manage the account. As a result, just as an “either-or survivor” joint account is a suitable option for a couple, an “anyone or survivor” joint account is a solid option for a family as a whole.
This is due to the fact that this form of a joint account can be maintained by all family members. If an account holder dies, the remaining or “survivor” account holders can manage the account and become the owner of the remaining balance.
Validity
A user’s private health insurance policy remains valid as long as the premium is paid on time. A group insurance coverage, on the other hand, expires when an employee switches jobs or resigns for any other reason.
Former or Survivor
Only the primary account holder can operate the account in this case. When the primary account holder dies, the secondary account holder gets access to manage the account.
Latter or Survivor
This type of joint account is the opposite of the previous one. As a result, the secondary account holder has access to the account in this case. The primary account holder will have access to it only when the second account holder dies.
Jointly
All transactions must be signed and mandated by all account holders in this case. If either of the account holders dies, the account can no longer be used. The rest of the money will be paid to the survivor.
Jointly Or Survivor
This type of joint account is similar to the one described above. The distinction here is that the survivor can operate the account. However, the account’s proceeds will be transferred to his/her account.
Before You Create a Joint Account…
Some couples prefer to keep their separate bank accounts. Keeping your accounts separate allows each person to handle the money he or she earns. This is especially helpful if partners have different spending habits; the ability to manage money in one’s own way offers each person a stronger sense of financial ownership.
Separate accounts can also be beneficial if you and your partner are in different financial situations. For example, if one partner is heavily in debt or has previously mismanaged money, a degree of separation can provide the other person with a sense of security—at least until the debt is paid off. (Third parties may withdraw money from a joint account to pay off a debt of one of the persons.)
The difficulty of separate accounts is deciding how to manage common costs. Couples may experience tension when determining who pays for what. If you choose to keep separate accounts, you and your partner should have a clear understanding of the situation and make sure that each of you is okay with the arrangement.
Who Owns the Money in a Joint Account?
Money in joint accounts belongs evenly to all account owners. Any account owner can make deposits or withdrawals from the account at any time, up to the bank’s maximum daily limits.
If one of the account owners dies, the funds in the account do not have to go through probate. Instead, the money and account ownership is transferred to the other account holder. Bear in mind, however, that the surviving account owner may need to provide a copy of the deceased account owner’s death certificate to the bank in order to transfer ownership of the assets.
Advantages of Joint Accounts
The fundamental advantage of a joint bank account is that two or more people are sometimes better than one. Sharing a joint bank account can offer several benefits for various kinds of relationships:
Married Couples And Domestic Partnerships
Couples can combine their resources in a joint account to save for a common goal, such as a vacation, or to pay shared household bills, such as utilities, rent, or a mortgage.
Parents and Children
Joint bank accounts can help parents teach their children healthy financial practices. With joint checking accounts, parents can simply monitor transactions and spending habits while teaching their children to use checks and debit cards. In addition, joint accounts can help those with children away at college speed up financial transfers for unexpected costs.
Elderly Parents And Their Adult Children
Joint accounts can assist adult children in managing their parents’ finances. This includes bill payments like medical bills, even from a distance if necessary.
Business Partners
Joint bank accounts allow business owners to easily share financial responsibilities such as paying vendors and making incidental purchases like office supplies.
Other Pros of Joint Accounts
With more than one account holder, you may find it easier to achieve your bank’s minimum balance requirement, which is necessary to reduce fees and enjoy higher interest rates on your savings.
Joint accounts can open new communication channels between you and your partner. Because you have a joint account, you should talk with your partner about any financial concerns that may occur. Because you’ll have to account for everything you spend, this can help you reduce your overall spending.
Joint accounts can also safeguard account holders in the case of death because the majority of them are set up with “rights of survivorship.” When one joint account holder dies, this feature permits another joint account holder to continue using the joint account. Legal procedures may limit access to assets for a funeral, estate, and other timely expenses if survivorship rights are not granted.
To summarize, joint bank accounts can help simplify finances by allowing almost any partnership to save and spend from a single account. This can make budgeting with a partner easier than reconciling different individual accounts each month, for example.
Disadvantages of Joint Accounts
Certain beneficial features of joint accounts may become problems in particular situations. Consider the following possibilities when deciding whether a joint bank account is good for you:
- Access: A single account holder could make withdrawals from the account at any moment without the agreement of the other account holder(s)—this is a risk of joint bank accounts during a divorce.
- Dependence: With parent and child accounts, children may become too reliant on their parents to provide money to pay for poor spending habits.
- Inequity: In households where partners’ salaries differ, one account holder may believe they are contributing more or less. This could lead to disagreements if there is not a good pattern of communication regarding financial matters.
- Inadequate privacy: Every transaction in a joint account is visible to all account holders. This may result in a level of visibility that makes one or both account holders nervous.
- Sharing of liability: If one account holder mismanages funds, all other account holders will be liable. Creditors can also seize funds in a joint account to satisfy the debts of one account holder, regardless of who deposited the funds in the account.
- Fewer benefits: If parents open a joint bank account with their child, the assets in the account may lower financial assistance awards for college. The same is true for accounts that adult children have with aging parents. It is because how money in a joint account is handled might affect a parent’s Medicaid eligibility.
If you are thinking of opening a joint bank account, you must trust others who will share ownership. A joint account without trust may cause more problems than it solves.
How Can I Close a Joint Bank Account?
Closing a joint checking or savings account is a simple process. Here’s a straightforward way to follow:
Stop all automatic transfers and withdrawals. This is particularly important for bills that you have set up to be deducted from your account each month. Then make your account balance zero. Once all scheduled withdrawals have been completed or stopped, you can write a check or start a fund transfer to deposit the funds in another account of your choice.
When your balance is zero, contact your bank and ask to close the account. Your bank will have certain procedures that you will need to follow in order to permanently cancel the account.
Is a Joint Bank Account Right for Me?
As you consider if a joint bank account is good for you, have an open discussion about finances with the potential account holders. All account holders should agree on general conditions such as how the money will be used and who will be accountable for paying particular costs with the account.
You should also set a schedule for reviewing your joint finances on a regular basis. A schedule can help remind all account holders that each has a say and can help head off financial difficulties before they become overwhelming.
You may realize that a joint bank account, in addition to individual accounts, is an important aspect of your financial strategy. For example, a couple may decide to pay for housing and utilities from a joint account but want to pay for their own costs from separate accounts.
Bottom Line
You now have enough information on joint bank accounts. This type of account provides many benefits, ranging from the development of healthy financial habits to the sharing of responsibilities. However, it is crucial to recognize that some of these same advantages may work against you in certain circumstances.
Remember to keep discussions with account holders open and honest as you determine whether a joint account is a good fit for you and your situation. The most precious thing you’ll ever invest in a joint financial account is trust.