Joint Account: A Definition

A joint account can help to eliminate the need for financial gymnastics between two parties. Although a joint account requires a certain level of trust, these financial instruments can help you avoid unnecessary friction.

What Is A Joint Account?

A joint account is a bank account that two or more people share, allowing them to deposit, withdraw or manage the account's money. It is common for business partners or family members to open a joint account together, sometimes including parents and spouses.

You can find joint accounts throughout the financial industry. But two of the most common include credit cards or checking accounts that come with a debit card.

How Do Joint Bank Accounts Work?

When you open a joint account, both account holders have complete control over the account. Although the financial institution may label one person as the primary account holder, both are equally in control of the funds. With complete control, that gives both the right to deposit, withdraw or manage money within the account.

For example, let’s say that you open a joint checking account with your spouse. With that, you would both have the ability to deposit funds directly into the account. But both parties could also withdraw funds or transfer funds into another account, such as savings.

A big allure of a joint bank account is that you can share expenses easily. Instead of sending money back and forth between separate bank accounts, you can set up a joint account to take care of shared expenses more easily.

However, the obvious drawback is that with shared control comes greater responsibility for both parties. It is critical to trust each other before choosing to set up a joint account with shared funds.

Who Can Have A Joint Account?

Technically, any two people can open a joint bank account together. However, it isn’t the right fit for any pair without a significant amount of trust.

With that, most who open joint accounts are family members, business partners or spouses.

How To Open A Joint Bank Account

Ready to open a joint bank account? Here’s what you’ll need to do.

Pick The Type Of Joint Account

You can find several types of joint accounts. Have a discussion with the other individual to determine what kind of joint account is right for your situation.

Do you want to share a joint credit card account? Or would you prefer to share a joint checking account? Both give complete control to the account holders. But both have a different set of consequences.

Choose A Bank

As with any financial product, you’ll need to find the right financial institution. Take some time to explore the different banks out there to find one that works for your situation. A few things to keep in mind include looking for a bank with lower fees, higher APYs, and great customer reviews.

Bring Identification Documents

In order to open a bank account of any kind, you’ll need to bring along identification documents. The exact documentation required will vary based on the bank, but a few commonly accepted forms of identification include your driver’s license or passport.

As a joint account, both individuals will need to bring along documentation.

Fill Out Forms At The Bank Or Online

Once you have your documents ready to go, you’ll need to fill out forms to set up the account. Depending on the financial institution you choose to work with, you may be able to fill out the form online.

In most cases, you’ll need to have both parties fill out information on the application. After you fill out the forms, you may have to wait for approval from the bank.

Determine The Expenses

Now that the account is opened, it is time to determine how both parties will manage it. Consider what expenses will be paid out of this shared account. Plus, how much each owner should plan to contribute to the account each month.

Open communication is critical to ensure that both individuals are happy with the arrangement. Without a clear understanding of how the account will be managed, it is easy to run into issues with the other individual’s spending choices. 

Make A Deposit

It is a good idea to talk about the expectations of both parties before committing a deposit. After a frank discussion with the other account holder, it is time to make your first deposit.

You can do this with a check, direct deposit, or transfer from an existing account.

Benefits Of A Joint Account

As with most financial decisions, there are pros and cons to opening a joint account. Let’s start with the benefits.

Convenience

If you share many expenses with another individual, then the convenience of a joint account cannot be understated. With separate accounts, it can take lots of financial maneuvering to ensure that bills are paid on time in a fair way. But with a joint account, you can cut out all the transferring back and forth.

Instead, you each make deposits directly into your joint account. From there, your shared expenses can be covered without the uncomfortable financial gymnastics.

Partnership

It is worth saying that setting up a joint account requires some level of trust. After all, you are trusting someone else with your hard-earned funds.

As you and a partner get comfortable using a shared account, it can allow you to further build your trust. Plus, it can help you to more efficiently work toward shared financial goals together.

Money-Saving

It is possible to save money with the help of a joint account. Many accounts require a minimum balance to waive monthly fees. With a joint account, it is possible that two individuals could surpass the minimum balance and reduce their number of monthly fees.

Drawbacks Of A Joint Account

Of course, there are also drawbacks to consider when opening a joint account.

Shared Responsibility

The biggest drawback of joint accounts is the shared responsibility that comes along with them. If you are sharing an account, the actions of a co-owner can significantly impact you.

For example, let’s say that you share a credit card account with your spouse. If your partner runs up a balance on the credit card, you will both be responsible for paying it back. Both co-owners share the liabilities, which can add up quickly.

Smaller Benefits

When you share an account, it is possible that your eligibility for government benefits may change. That’s because joint accounts can provide an inflated picture of your assets.

For example, let’s say that you have a joint checking account with your child. When they head to college, the funds in that account will be considered their assets. Unfortunately, this could impact their ability to access certain funding opportunities.

How To Close A Joint Bank Account

Here are the steps you’ll need to take to close a joint account.

Ensure You Have No Debts

Before you start the process of closing the joint account, make sure that all of the charges have been cleared. You don’t want to close the account before eliminating any debts associated with it. Otherwise, you could run into a major financial headache.

Cancel Automatic Bill Payments

If you have any bills coming out of the account automatically, cancel the payments. It could create a problem if an automatic bill payment tries to seek compensation from your closed account. The best way to avoid the issue is to cancel automatic payments ahead of time.

Open A New Account

In most cases, you’ll likely need to have another bank account in place to manage your finances effectively. With that, it is a good idea to open a new account before closing your joint account. The new account will allow you to continue managing your finances without any problems.

Close The Account

Finally, it is time to close the account. The exact procedure will vary based on the bank. But you may be able to close the account online, over the phone, or in person.

Sharing A Joint Account With Family And Partners: FAQs

Let’s explore the answers to some common questions about joint accounts.

Should I open a joint account with elderly family members?

It can be convenient to open a joint account with an elderly family member to help manage their day-to-day finances. If you have an elderly family member who needs your help paying bills, a joint account could be the right solution.

However, it is important to keep their assets in mind. You don’t want to overinflate the elderly person’s assets. With overinflation, it could disqualify them for some benefits such as Medicaid. You’ll need to run the numbers to decide if a joint account is a good choice for their situation.

Should I open a joint bank account with my child?

A joint bank account can help your child learn basic money management skills under your supervision. As a co-owner of the account, you could make some mistakes along the way. But if you make an effort to keep the stakes relatively small, then it could be the perfect learning experience.

Should married couples or domestic partners have a joint account?

The decision to open a joint account with a domestic partner or spouse is extremely personal. For some couples, a joint account is a perfect way to manage their funds. For others, separate accounts work better for both parties.

You and your partner will need to determine whether or not this is the right fit for your finances.

The Bottom Line

A joint account can simplify your finances, but it opens the door for consequences from another individual’s financial choices.

Take some time to explore your options for opening a bank account before deciding if a joint account is the right fit.