When a couple becomes husband and wife, the usual practice is for them to combine their properties and possessions, including their money – and of course, their lives. This means that they now take shared responsibilities for the home like taking care of the bills, getting a mortgage, or setting up a savings and emergency fund for the future family.
It can also mean combining their paychecks, other regular income (such as from a side business), or other money that come in (such as wedding gifts, tax refunds, inheritance) into just one bank account. A joint bank account gives two or more people the right to co-own the account and assume equal share and responsibility.
Whether you’ve just gotten married or are already in a long-term relationship, deciding how to manage your bank accounts should be one of your top priorities. Therefore, it's good be familiar with all the aspects of a joint account before you open one with your spouse.
What Is a Joint Account?
There isn’t much difference of a joint account against a standard banking account in terms of features; it’s just that two or more people can own the account. Two or several people can pool their money together in a joint account.
This is extremely helpful and efficient for both spending and saving purposes – saving money toward shared goals such as a new home, car or vacation. A joint account can also help you and your partner pay shared expenses like mortgage, auto loans utilities and groceries from just one account.
In a joint account, the bank gives each person on the account access to it. For example, each owner will receive checks and a debit card that the bank has linked to the checking account. The standard practice is to honor the transactions that one owner makes without needing the consent and authorization of the other owner(s).
This means that both (or more) owners should be responsible in maintaining the account especially ensuring that the account has funds to accommodate checks and withdrawals. Good transparency, communication, and coordination among the owners are necessary to make sure that they manage the account successfully.
Getting all your funding for your cash withdrawals, check payments, online payments and debit card swipes from a single account will help both of you see how you spend your money. That would make budgeting as a couple a little bit easier. When both of you can track your funds, there may be less temptation to buy on impulse or in secret.
A joint account can also open some features for both of you that you may not enjoy as an individual account holder. That’s because when you pool your money, you naturally increase your account balance and helps you surpass the minimum balance requirement and qualify you for perks such as waived maintenance fees, a higher interest rate or even rewards and privileges.
How to Open a Joint Bank Account
Opening a joint bank account is very easy. You take the same steps as opening a regular account, and just choose the option of making it a joint account. When you open a joint account, the bank will ask you to provide the information of all the owners of the account. So, be ready with your Social Security numbers, photo identification, addresses, and other information.
Some institutions or account products allow you to simply add another person as co-owner of an already existing account. However, the firm will still ask the new owner to provide the required information and documents.
Before you finally open your account, make sure that you and your co-owner understand the terms of the joint account. It may help if you prepare a list of responsibilities to note who will be responsible for what concerning managing the account. For example, if someone issues a check whose amount is more than what you have on your account, who will assume responsibility? Will it be all the owners or just the person who wrote the check? Check with your bank or financial institution about how they handle these sort of things.
Even if you open a joint bank account, it still helps to keep your own personal account open. This gives you an account that you have total control over just in case a situation comes when you need an account just for yourself.
Joint Bank Account Pros & Cons
Before you open a joint account, do some analysis on whether there will be more advantages to you than disadvantages by combining your finances in one account. After that, decide whether it’s the right move for you.
Here are the main benefits of joint bank account:
Beneficial To The Couple
As a newly-married couple, you are in the adjustment stage.
Your joint account can help you see exactly where your money is going and gives you a glimpse of your partner’s spending habits. Both partners can identify careless and irresponsible spending early in the relationship and avoid many financial problems later such as missed payments or overdrawing checks.
Transparency And Responsibility
A single account for everything is more efficient since both of you would be able to see all the money that comes in and out.
It leaves very little chance to encounter financial “surprises” along the way. This particularly helpful for married couples because they just need to keep track of one account. They are not likely to miss an account activity such as a withdrawal, payment, and charges. Plus, it’s easier to balance the checkbook at the end of each month.
Its simplicity makes it easier to manage.
Think about this: all income pours into one account while all the mortgage payments, loan payments, bills payments, and savings will come from the same account. This makes managing finances very clean and easy to monitor because there’s just one account to look at. Maintaining daily operations becomes a walk in the park for the couple.
Avoids Legal Problems
Joint bank accounts also streamline certain legal issues.
For example, if one spouse passes away, the surviving spouse will retain control to funds in a joint account without having to refer to a will or get a court order to claim the money. In case the money is in a separate account, the widow or widower has to go through a time-consuming legal process before he or she can gain access to the deceased’s bank account.
Each bank account has insurance for maximum coverage of $250,000 by FDIC or by the NCUA in case of a credit union.
Here are the main cons of joint bank account:
Lose Your Privacy
If you’re not used to someone monitoring how you use your money, you may feel uncomfortable with a joint account. Some friction can happen when you have contrasting styles of handling your money – you might be the carefree guy with your cash and your partner might be the type of person who accounts for everything to the last cent. How would you feel if there’s a set of eyes that watch you each time you part with your money?
Would this diminished privacy affect your relationship? In case the relationship goes south, and it comes out that one partner has not been totally honest with money matters, it’s not just the relationship that can suffer but also your own finances too.
Highlight Your (Spending) Differences
Yes, a healthy marriage is the union of two entirely different persons who have learned to accept and complement each other’s uniqueness. But it’s not entirely rare to hear of marriages that break apart because of escalating arguments about the spouses’ contradicting spending habits. If one partner (or both) has the tendency to spend recklessly, it’s easy to bury yourself in debt soon enough. In such a case, a joint account may not work for the couple.
The Former Commitments May Get In The Way
A person may come into the marriage with a lot of financial baggage – student loans, credit cards, alimony, child support or other outstanding obligations whose payment now will come from the joint account. In this situation, the other spouse might feel he or she got the raw end of the deal. After all, the other spouse may become responsible for paying them too. To avoid this, the couple should discuss their personal debts in detail before deciding on the kind of account they would want to open.
It Makes Divorce Or Breaking Up More Complicated
In a joint account, each spouse has all the right to take all the money in the account and to close it without the permission of the other spouse. This means that the faster spouse can leave the slower one with nothing. Because the couple mingled their money in one account, it will harder to tell how much is whose in case of a break-up.
Giving Gifts Become More Complicated
Suppose one partner wants to surprise the other on his/her birthday with a nice gift, how can he/she get money from their account without the other knowing? You’ll probably lose the element of surprise when you have to come clean ahead of time and that takes the magic away from the whole thing.
How To Manage a Joint Account
If you believe that opening a joint account is the best thing for your finances, look at these tips to make managing your money easier.
- Cast a budget together so that you both agree on your saving and spending limits every month.
- Have a discretionary allowance that you can use for anything without having to get the other person’s okay.
- Assign who will balance the account and pay the bills that the automatic payment does not cover.
- Be open and honest when you talk about money matters.
- Don’t say “yes” to a joint account if you are not comfortable with it.
- Try to understand the other person’s view on money (especially if they are different from yours) and bring to the discussion table all the financial burdens and troubles you have.
There is no single money management style that would fit all person. Talk through each money issue that you have and come to an agreement that both of you will be happy with, joint account or not.
Alternatives to Joint Accounts
A joint financial account is not the only way to go for married couples. You might have a handful of valid reasons why you want to keep certain assets under separate ownership. If that is the case, remember that there are other ways to save and use your money without compromising the health and happiness of your relationship.
- Continue to keep separate accounts. Don’t force yourself to share accounts or open joint financial accounts if you’re not ready for it. In the meantime, you may be more comfortable and efficient having separate bank accounts.
- Agree on your share in the expenses. Even if you don’t have a joint bank account, you can discuss who is responsible for paying each specific bill. Then, you can both use your respective individual accounts to take care of your share of the expenses.
- Have a joint account just for specific expenses. You can open a new joint account specifically to cover household expenses. Regularly, both of you will contribute a specific amount to the account – just agree on how much each one’s share should be.
- Keep a joint account for your shared savings. In the same way, you can have a joint account for your savings. You should decide how much to contribute and what circumstances would call for the use of the funds, for example, medical emergencies, etc.
Married couples have many options when it comes to registering and titling their properties. Not all relationships are the same so you need to do what makes sense for you and your spouse and what you think will work. You can have a joint bank account, maintain separate accounts, or do a combination of the two. If you happen to live in a state where the law assumes that everything is community property, remember that the state automatically assumes that there is joint ownership on properties and money. You would need to provide clear evidence to indicate sole and separate ownership, when necessary.
Should You Open a Joint Bank Account?
You’ve learned about the advantages and disadvantages of having a joint bank account. The obvious question would be: Is it advisable to open one? Your answer will have to consider your own finances and those of your prospective co-owner(s). Will you be exposing yourself to more risk by opening a joint bank account? Or will it work more to your favor? Take stock of your income, debts, credit, etc. before making a decision. Just be honest and open with your potential co-accountholders.
You should also examine your personal preferences before you decide to open a joint account or not. Are privacy and independence big things for you? Sharing a joint bank account means that you will allow your co-owner to view all your transactions. It would be extremely difficult to keep your joint bank account activity confidential, which can be a blessing or a curse to you, depending on your perspective.
Don’t forget that even if you open a joint bank account, you can still keep one or two separate individual accounts. You can use the joint account for things like shared expenses and common savings for a shared goal like a holiday abroad. This way, you can still keep a bit of financial autonomy with your own separate individual accounts.