What Is a Joint Bank Account?

What Is a Joint Bank Account?
••• PhotoAlto/Eric Audras/PhotoAlto Agency RF Collections/GettyImages

Married couples often decide to combine their finances into joint bank accounts to simplify things. All income goes into those shared accounts and bills are paid out of them. But a joint bank account may not be the best choice for everyone, so it’s important to weigh the pros and cons to decide if it’s right for you.

Joint Bank Account Defined

If you have a significant other, or someone else who shares living expenses with you, maintaining separate bank accounts can become burdensome. As bills come in, someone has to decide who pays what, and someone also has to track all the activity coming in and going out of those accounts.

For that reason, many households decide a joint bank account works best. You can choose to have a joint checking account, a joint savings account, joint investment accounts or some or all of the above. But before you head to the bank to set something up, there are some instances where a joint account isn’t a good idea.

The biggest reason to opt to keep finances separate is to maintain your financial independence. You’ll be in charge of making sure your bills are paid with money set aside for the future. You may also find that the FDIC limits on insurance make it better to have separate accounts, or you perhaps prefer the security that comes from knowing if things don’t work out, you won’t have to worry about splitting things up.

Who Should Share Bank Accounts?

In many cases, when you think about joint bank accounts, married couples come to mind. But you don’t have to be married to share checking and savings accounts. If you have a significant other, for instance, you may choose to combine your finances to make things more convenient.

Another instance where joint bank accounts sometimes make sense is between parents and children. Adult children caring for aging parents may find that a joint account is the best way to manage everything. Some parents may also choose to add a child while they’re building credit. If the child is under the age of ​18​, the bank may instead encourage you to set up a custodial account, but some banks allow minors to be joint account holders.

How Joint Bank Accounts Work

A joint bank account works similarly to one you’d set up individually. You’ll apply, providing personal details for both account owners, and wait for approval. You’ll both go through the same credit check you’d endure if you were applying on your own, and you’ll both have to sign and provide information for tax purposes if you’re approved.

During your time as account holders, you and the co-owner will have full authority to manage the account. You can both deposit checks and withdraw funds, and you’ll typically each be issued separate debit cards. For this reason, it’s important to only open a joint bank account with someone you fully trust.

Things get a little trickier if you ever need to close a joint account. Some brick-and-mortar banks will require you to visit a local branch together to close things out, although in some instances you can fax or email your request. Depending on the bank’s requirements, both parties may be required to be present, or to sign documents, before the funds in any joint accounts can be released.

Joint Checking Accounts

One of the most popular types of shared accounts is a joint checking account. Since this is where most of your money comes and goes, having both names on it can be a big help. You can have your income directly deposited into the account and set up autopay for all your bills.

It’s important to note that you don’t have to solely limit yourself to one account. You may instead decide to have separate checking or savings accounts, then have one account that tackles the majority of your bills. Most banks will even set it up so you can easily transfer money between your various accounts as needed.

Joint Savings Accounts

Whether you have a shared checking account or not, a joint savings account can be a great way to work together toward reaching your financial goals. You can set up an account and funnel money into it, then watch as the account grows. This can help you set money aside for Christmas gifts, an upcoming vacation, retirement or any other future goal.

For many couples, though, a joint savings account is yet another way to keep all your finances in one place. You could choose to have separate savings accounts but keep your savings together. As long as you’re both on the same page with your finances, a joint savings account can be a great way to work together to save for the future.

Advantages of Joint Bank Accounts

Convenience is the biggest reason to opt for a joint bank account. All your money will be in one central location, making it easy to keep track of everything than it would be if you had individual accounts. Having a joint account can also motivate you to keep your spending habits in check since you’re accountable to someone else.

Another plus that comes with pooling your money is that, together, you’ll have more of it. That means you can take advantage of accounts that require a minimum balance. You might be able to earn a higher interest rate on a joint savings account, for instance, or qualify for waived maintenance fees on a joint checking account.

But a joint bank account can also be symbolic of the partnership you’re forming. This is especially true if you’re making a lifelong commitment, whether that involves a marriage license or not. Having your finances traditionally joined in this way also helps if one of you dies. You’ll have an easier time accessing the funds in the account than if you weren’t both named on it.

Disadvantages of Joint Bank Accounts

Just as there are reasons to put both names on an account, there are good arguments against it. The biggest disadvantage is a bit of a downer, but it relates to what happens if your relationship doesn’t work out. In the case of a nasty breakup or impending divorce, one person could empty out all the money in the joint checking account before the other even knows what’s happening.

A more practical argument against it has to do with insurance. Each “depositor” is insured for up to ​$250,000​ under the FDIC. If, together, you have more than ​$500,000​ at one financial institution, you could find if something happens, your money isn’t covered. Having your accounts separate can prevent that worry.

Whether to have joint bank accounts or separate accounts is something that’s up to individual preferences. Some prefer to keep their money separate, others like to have everything in one place and many others find a happy medium where they have some money in a shared account but keep separate accounts, as well. Once you’ve weighed all the options, you’ll be able to make the decision that’s best for you and the other person in your life.