What is a Joint Bank Account?

Opening a Joint Bank Account

A joint bank account is similar to a regular checking or savings account however it can be owned by at least two individuals. This particular type of financial instrument is geared toward those who have a certain level of trust or communication as it allows for making regular deposits, bill payments, sharing expenses or building savings together.

Most people who make the decision to open a joint bank account are married couples, parents of teenagers, roommates or those who may need to step in and manage another person’s finances. In some cases, business ventures can be used as a joint bank account where there are more than one member responsible for making financial decisions on behalf of the company.

How Do Joint Bank Accounts Work?

Utilizing a joint bank account is a fairly simple process and it requires each individual to keep an accurate accounting of outgoing expenditures or incoming deposits. Privileges such as check writing, funds transfers, bill payments and debit purchases are shared amongst all account holders. Having these responsibilities may contribute to the need for regular budget discussions on monthly financial health check-ups.

Maintaining the account also allows the owners to take advantage of some features such as avoiding service fees due to minimum balance requirements, decreasing the amount of transfers, and avoiding the potential for overdrawing the account.

Depending on the type of bank that you use you may also be subject to higher interest rates or annual percentage yields such as those with money market, high yield savings accounts, and other introductory account perks.

Pros and Cons of a Joint Account

As with any type of banking instrument, being a joint account holder has its benefits as well as its drawbacks. Having an account under your name, regardless of how many other signers exist makes you fully liable for any of the transactions that take place. In the case of trying to manage transactions with someone who may not be as financially savvy, it may present unforeseen circumstances.

However, in an ideal scenario sharing the account liabilities and duties with a responsible individual can greatly improve each person’s credit scores, banking profile, and open the door to additional opportunities such as alternative products. 

Below are some of the most common pros and cons that should be considered when opening a joint bank account:

Pros

  • Ideal for shared living expenses that require an equal monthly contribution
  • The ability to teach money skills to a child who may have trouble keeping spending down
  • Better management of financial affairs for elderly parents in lieu of an appointed guardian
  • Funds are federally insured up to $250,000 per person in the event of a banking loss 
  • Flexible options are available for account accessibility in case of an emergency

Cons

  • Negative account history is reported to multiple credit profiles
  • Overdrawn balances may be deducted from either person’s account deposits
  • Transaction history is fully accessible to all parties providing full transparency
  • Some states allow creditor access regardless of the deposit amount 

How to Open a Joint Account

To open a joint account or add someone to an existing account, both parties may need to visit the bank or credit union and complete the appropriate application process. This usually entails a credit check, identity verification, financial history report, and account acknowledgements or disclosure signing. Once approvals are made, one or both account owners can make an opening deposit and be provided debit cards and/or check books to manage the account.

When Should you Open a Joint Account?

The most ideal time frame to open your joint account should be when you are sure that both people who will be designated as account holders can deal with the financial responsibility of having access to funds that aren’t entirely their own. This is often undertaken by couples who are embarking on combining finances or roommates who want to ensure equal expenses. 

Many people also opt to keep a separate account as well that allows the account holder to maintain more control over individual finances while making preset contributions to the joint bank account. Linking or unlinking these together can usually be done with a simple online banking request at the account holders’ convenience.

FAQs

Can you have a joint bank account without being married?

Joint bank accounts can be opened for individuals who are not legally married. Parents of teenagers, roommates, civilly recognized partners or seniors are some of the most common individuals to open joint bank accounts. However, it is a popular method for married couples to merge their finances. 

Who owns the money in a joint bank account?

The funds in a joint bank account are equally held by each person listed as an account holder. All money deposited into the account can be removed by any person who is authorized to sign. When it comes to deductions, creditors may also seize any dollar amount applicable to that state’s laws regardless of how the funds were contributed.

Does a joint account need both signatures?

Joint bank accounts do not require both signatures for day to day transactions, account access or functions such as direct deposit, atm withdrawals, debit card purchases or check writing privileges. Although, on occasion the bank may need both if it pertains to specific circumstances such as requested account restrictions.

What happens to a joint account when one person dies?

When a person passes away all of the funds in a joining bank account typically go into a right of survivorship status, However, specific actions can be taken up upon opening of the account to ensure that the other person is provided immediate access to the account versus being required to to close the account or deal with the settlement process in the case that they are a secondary account holder.

Conclusion:

Having a joint bank account has many benefits that can help you and a partner of a loved one manage your monthly expenses, save for a home down payment, or get things back on track. If you are thinking about taking this approach, it is important to weigh the pros and cons to determine which route may be most effective for your situation.

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