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Joint Bank Accounts: Guide to Joint Checking & Savings Accounts

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To share or not to share your finances, that is the question. Joint bank accounts have had a complicated reputation in the past. On one hand, a shared bank account can signify that you’re ready for the next step in your relationship with your partner. On the other, sharing a bank account can mean a whole new level of financial and personal vulnerability that you might not be ready for just yet.

No matter where you stand on the issue as it is, there are some things you might consider before opening the channels between your finances and your significant other’s (or your relative’s, or your business partner’s). In this post, we’ll clear up the confusion on what joint accounts are, their benefits and drawbacks, what it means for your financial future, and how you can tell if you’re ready to bond with your bank account.

Have a specific inquiry in mind? Use the links below to skip ahead or read all the way through for a thorough overview of shared bank accounts.

Definition: What is a Joint Bank Account?

A joint bank account, also known as a shared account, is shared by two or more people who are typically relatives, a couple, or are in business partnership wherein financial trust has been established. When a bank account is shared, each individual on the account has equal access to funds as well as equal responsibility for any penalties incurred such as overdraft fees. Depending on the type of agreement made, a shared bank account may require authorization from all account holders when transactions are made.

How do Joint Bank Accounts Work?

You may or may not have heard about shared bank accounts before, but understanding how they actually work is an entirely different topic. However, it’s really not as complicated as you might think! Joint bank accounts essentially work the same as any other bank account, but instead of just you having access to the funds and decision-making powers, the person or people you’re sharing an account with also have these capabilities.

We’ll dive a little bit deeper into specific scenarios regarding joint accounts—can your spouse close the account on you, what happens when the account holder passes away, etc.—in our FAQ section. But for now, let’s take a look at who uses joint bank accounts and why.

Couples

Shared bank accounts are most often associated with spouses or partners who are deciding to take the next step in their relationship by swapping and sharing their financial information. And yes, it’s fairly common for couples to share their finances. In fact, TD Bank’s annual Love and Money Survey found that 76% of couples share at least one bank account with their partner. But what’s the benefit of combining your accounts with your significant other, besides investigating their monthly spending habits? Let’s take a look at a few of the potential pros and cons of sharing a bank account with your spouse, boyfriend, or girlfriend.

  • Pro: Combining finances with your partner may open the door for more financial opportunities like putting a downpayment on a house, affording a wedding, or preparing for parenthood.
  • Pro: Sharing bank accounts could foster better communication and more accountability between you and your partner.
  • Pro: When you combine finances with your spouse, or you’re preparing to move in with your significant other, you may find that it’s easier to account for shared expenses like household items, rent, and utilities.
  • Con: If you ever find that you need to separate your bank account from your partner, you might find that the process is not as easy to undo as you might have hoped. In general, both parties must agree and provide signed authorization in order to disjoin the account(s).
  • Con: If you or your partner have a less-than-desirable history with finances or have a financial “secret,” you could be putting your relationship at risk. According to a recent survey, one in ten millennials said they would consider breaking up with their significant other if they knew they were hiding a financial secret.
  • Con: While combining your finances might bolster your shared checking and savings accounts, it has no impact on your credit score. This means you do not benefit from your spouse’s high credit score, and vice versa. The good news is, if you have a good credit score but your partner’s credit score is not ideal, their low score would not have negative effects on your credit profile.
  • Con: In many cases, one partner in a relationship makes more money than the other, which could complicate your relationship if you have equal access to funds in your checking and savings accounts. Before joining your bank accounts, make sure you and your partner can agree on how accounts should be handled.

Relatives

Couples aren’t the only ones who opt for joint bank accounts—sometimes parents and other relatives will set up shared accounts in order to track their child’s finances or, if family members share a trust account or are in charge of managing finances for elderly relatives. Here are some of the benefits and drawbacks you might consider when deciding whether or not to establish a shared account between family members.

  • Pro: If your child is setting up their first bank account, you may want to have shared access to it in order to help them learn to manage their own finances.
  • Pro: Another situation when relatives might share accounts is if one relative is helping take charge of an elderly or sickly family member’s finances if they are unable to do so on their own.       Being able to make certain financial decisions on their behalf can make life easier for both the primary account owner and their relatives.
  • Con: Because many joint bank accounts have “Joint Rights of Survivorship,” when one relative passes away, the organization of their estate can become complicated when it’s time for the remaining assets to be distributed. Since the account is shared between account owners only, the funds will automatically transfer to the surviving owner, not who’s on the will.
  • Con: When one account owner passes away, the joint account could be subject to estate taxes.

Business partners

Business partners are another example of when shared bank accounts might be employed. Of course, combining bank accounts with your significant other is a big step, but sharing financial information with your business partner could be even riskier if you haven’t established a trustworthy foundation yet. Before you take your business partnership to the next level, be aware of the following pros and cons.

  • Pro: Sharing a bank account with your business partner can help you streamline your business finances and help you separate your personal and business expenses.
  • Pro: Combining accounts may make keeping track of your business assets, accounting, and budget easier and more accurate.
  • Con: In many instances, shared business accounts deal with significantly more money than a shared bank account between spouses, which means more money is on the line if your partnership and account management begins to suffer.
  • Con: If you and your business partner have equal decision-making powers when it comes to money management, you might find that making critical choices takes longer and is harder to accomplish (too many hands in the pot).

How to Combine Bank Accounts

Now that you’re aware of the possible benefits and drawbacks concerning joint bank accounts, you’re on the fast-track to deciding whether or not combining finances makes sense for your situation. Of course, you’ll want to consider unique circumstances that may impact your situation in addition to the information outlined above.

If you’re ready to combine checking accounts, here’s what some financial experts say about the process:

  1. Share both your checking and savings account, not just one or the other
  2. Send your automatic account debits and credits to the same, combined account
  3. Setting up your new account with the same bank can make the process easier

Joint Bank Accounts: FAQs

Before you take any steps to share your accounts, take a look at these frequently asked questions.

Is it illegal to withdraw money from a joint account?

No. In general, each account owner has equal rights to the funds in an account, so they are entitled to allocate funds as they please. However, if a couple were to divorce and separate their finances, the assets would be divided according to marital and community property laws.

Can one account owner close an account without notifying the other?

According to the Consumer Financial Protection Bureau, certain state laws say that any individual who is authorized to write checks for an account also has the ability to close the said account.

Is it better to have joint or separate bank accounts?

The answer to this question depends entirely on your own preferences and financial situation. Before making any financial decision, be sure to educate yourself on the pros and cons as well as your other options.

An Overview of Joint Bank Accounts

  • Joint bank accounts are when two or more people agree to share access to their finances through checking, savings, or credit card accounts.
  • Couples, relatives, and business partners are examples of individuals who might decide to combine their finances with a shared bank account.
  • Depending on your financial situation, joining your bank accounts may result in some benefits—like reaching your couple’s financial goals—and/or drawbacks—like complicating communication with your partner.
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