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How Do Joint Bank Accounts Work

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A Joint Savings Account Can Make It Simpler To Manage Finances With Another Person But You Should Only Open One After Defining Its Purpose And Establishing Clear Rules With People You Trust

How Do Joint Bank Accounts Work?

Savings accounts are a common type of bank account. A joint savings account is owned by two or more people.

A joint savings account may make it easier for multiple people tomanage their finances together. It can also allow an individual co-owner tohave more money insured at one institution than they would with a savingsaccount on their own.

Well go over the potential benefits of joint savings accounts in more detail and some things to consider before you open one.

Best Joint Bank Accounts Of 2022

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If you want to closely manage finances with another person, a joint bank account might be worth considering. Joint bank accounts allow two or more individuals to equally own and monitor an account.

Our top picks for joint bank accounts have minimal bank fees and unique features. We’ve chosen joint bank accounts that might be ideal for specific a purpose like a bank account for parents and minors as well as generally strong joint bank accounts depending on your bank preference.

What Should We Consider Before We Get A Joint Checking Account

Merging your money often makes sense when youre merging your lives. That means taking shared responsibility for paying bills or deciding on shared savings goals. For many couples, a joint bank account is the ultimate symbolic gesture of their financial union.

Talk openly about opening a joint checking account. Discuss your views on finances. What is important to you? What do you want to save for? What kind of debt do you have? How much do you earn, and what do you have to spend each month? Make sure youre able to come to agreements about how to tackle these issues together.

As stated in our breakdown of ,

The most important thing in deciding how to combine finances is to be honest about your feelings from the start and always keep an open line of communication. Money is frequently considered to be the biggest strain on relationships but working together to find solutions that work for everyone can reduce some of the stress.7

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Who Can I Open A Joint Savings Account With

Generally, you can open a joint savings account with anyone. But just because you can doesnt mean you should.

Since a joint account allows anyonewith ownership to withdraw funds from the account without another accountholders permission, its important to have a clear purpose for the account and the funds in it. Its also important to open this type of account with someoneyou trust.

Joint savings accounts can makesense for partners or married couples who manage shared expenses. And parentsmay find a joint account with a child a useful tool to teach them aboutfinances.

Disadvantages Of Joint Bank Accounts

Joint Bank Accounts 101: Pros, Cons, Requirements

Bankers beware: Joint accounts have a lot of downsides, so be sure you trust your co-account owner on a personal level and a financial level before opening.

For starters, if a relationship or friendship ends poorly, the other co-account owner can drain the account before you are able to freeze the funds . If your relationship is on rocky ground, a joint bank account is not a good idea because a breakup could affect your credit score.

Some partners who do not see eye to eye on spending and saving should consider separate accounts to avoid fighting.

Instead of combining all your savings into one account, create an account for monthly contributions toward shared bills and keep the rest of your finances separate.

Another major con of joint bank accounts is what can happen if your co-account owner mismanages the funds. They may be solely responsible for the act of overspending, but the bank will hold both of you responsible for the resulting overdraft fees and youll also be out all that spent money.

And if your account is drained by the other person and you miss an important payment for a bill in your name that is auto withdrawn from the account, this will affect your credit score, even if it wasnt your fault.

Further, any funds in a joint bank account count toward both of your assets. That means, if one of the account holders files for bankruptcy, the money in the joint bank account is fair game for their creditors, even if you actually contributed most of that money.

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Is A Joint Bank Account A Good Idea

A joint bank account can be a good idea as long as you and the other account holder have a strong, trusting relationship. Whether youre planning on sharing an account with a child, significant other or aging parent, communication is essential. That may mean having difficult discussions about spending and saving habits. As uncomfortable as it may be, initiating these types of conversations can prevent even bigger headaches later.

Its important to lay out expectations with the other account holder, says Carrie Houchins-Witt, a financial advisor. If your teenager hasnt quite grasped the concepts of saving and spending and personal responsibility, be careful about putting money in the account and expecting them to budget properly without your guidance.

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Types Of Joint Bank Accounts

There are two main types of joint bank accounts:

  • Rights of survivorship accounts. This type of joint bank account is most commonly used by couples and close family members. If one account owner dies, 100% of the funds go to the surviving account owners and the funds dont pass through probate.
  • Convenience accounts. This type of joint bank account is most commonly used by the elderly or incapacitated individuals who need someone to act on their behalf. There arent any rights to survivorship, so the money is divvied up according to the estate plan once the account owner dies.

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What Are The Benefits Of A Joint Bank Account

If you want to open a joint account, then it is important that you are both totally clear on why youre setting it up and how you are going to use it. There are some clear benefits, notably transparency over what is being spent, which can avoid awkward conversations down the line.

This complete clarity over where all the money is going can make it easier to manage the overall household budget more effectively, says Sarah Coles, personal finance analyst at Hargreaves Lansdown .

It also means you support each other with every household expense, and when one of you dies, the other can continue to access money in a joint account.

How Much Do They Cost

Properly Plan Your Joint Bank Accounts

Joint accounts come with the same charges as personal accounts, including:

  • Failed direct debits fees

  • Annual or monthly fees for some packaged accounts

If you manage your account carefully, you should be able to use it for free.

A joint account could cost you money if another account holder spends too much, which could:

  • Use up some or all of the money in your account

  • Leave you overdrawn, which means you owe money to your bank

  • Mean you have to pay interest charges on what you owe

  • Lead to fees if you exceed your overdraft limit

If this happens, both you and your joint holders are responsible for paying back the money thats overdrawn along with any interest or fees.

There are lots of joint accounts to choose from and therefore its worth comparing providers and accounts to find one that suits you and one that is affordable.

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Drawbacks Of A Joint Bank Account

Along with a joint bank accounts many perks there are some risks you take on, as well. For starters, there is no protection in the event that one owner misuses the account. So if your partner bounces a check associated with the account without your knowledge, you are both held accountable even though you had nothing to do with it.

Also, one owner can withdraw a huge chunk of funds without telling another owner. Because joint bank accounts assume the owners communicate regularly, the bank wont require approval for this kind of transaction. This is why its important to open a joint bank account with someone you trust. You should also still regularly check on the account.

Similarly, one persons financial troubles can become both owners financial concerns. For example, if one owner gets divorced or goes bankrupt, the funds within the account will be seen as that persons assets. That means that regardless of the other owner, the money is up for grabs. You and your co-owner will have to be honest and upfront about each of your finances to avoid a big financial disaster.

You could potentially see a bigger tax bill due to your joint bank account. If youre both putting money into the account, thats fine. But if you deposit money into the account, and your co-owner withdraws more than the $14,000 yearly limit, the IRS sees that withdrawal as a gift.

There Are Many Smart Reasons For A Couple To Open A Joint Checking Account

Theyve been linked to lots of positive relationship benefitsthings like increased trust and communication, improved ability to track spending and saving together, and ensured access to communal funds in the event of illness or injury.1 Joint checking accounts promote teamwork and equality and allow both partners to participate in planning and paying for big-ticket itemslike a house, a , a , a vacation, or any unforeseen expenses the future may hold. It turns out that joint checking accounts can be not only practical and convenient, theyre also kind ofdare we say?romantic.

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Best Account For Couples With Individual Goals: Qapital Goals Account

Why it stands out: Qapital is an online banking platform with unique savings tools that help control spending.

The Qapital Goals Account is where you will keep the money for goals and collect savings earned after setting up “Rules.” Some “Rules” can round up purchases to the nearest dollar or help you complete the 52-week money challenge.

Qapital also has a special couples feature called Dream Team. Dream allows couples to share visibility of individual bank accounts while still keeping money separate.

What to look out for: Qapital is a mobile banking platform. Access to certain features may entail a monthly fee that varies between $3 to $12 per month. If you don’t want to deal with monthly fees, consider one of our other top picks.

Why Set Up A Joint Bank Account

How Do Joint Bank Accounts Work?

There are many reasons why someone may consider opening a joint account. For example, couples may set up a joint account to pay household bills or deal with other shared expenses. This is one of the most common uses of joint accounts.

In some cases, joint accounts may be considered as an option for someone to get help from family members or friends to pay bills and manage their finances.

For example, health conditions or mobility issues could make it difficult for someone to manage their personal banking on their own. Getting to the bank or using online banking services can be difficult for some people. A person may consider setting up a joint account with a family member, such as an adult child, after the death of a spouse who used to deal with the household finances.

It may also be important to consider other consequences of a joint account such as whether probate fees or taxes will apply upon the death of a joint account holder or whether the remaining funds are intended to form part of the deceaseds estate or be gifted to the surviving joint account holder. These considerations may be addressed in consultation with a lawyer.

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Joint Bank Account Rules: How Do They Work

Joint bank accounts can be a useful tool for sharing expenses or assisting someone in handling their finances. Joint accounts can help you budget and meet day-to-day expenses in situations that involve multiple people. However, they can also complicate your tax situation and generate liability concerns.

There May Be Income Tax Estate Tax And Other Consequences

    Family members can be left scrambling for cash just to pay for the basic necessities of life when a loved one dies, particularly when the death is unexpected. A bank account held in the deceased’s sole name can’t be touched or depleted except through the probate process, so that money is out of reach.

    But “sole name” is the key term here. Many individuals hold joint bank accounts with someone else, which avoids that problem.

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    Pros Of Joint Bank Accounts

    The primary benefit of a joint bank account is that sometimes two or more heads are better than one. Sharing a joint bank account can provide different benefits for different relationships:

    • Couples can pool their resources in a joint account to save money toward a common goal, like a vacation, or pay shared household expenses, like utilities, rent or a mortgage.
    • Parents and children. Joint bank accounts can help parents instill good financial habits in their children. Parents can easily monitor transactions and spending habits with joint checking accounts while teaching kids to use checks and debit cards. For those with kids away at college, joint bank accounts can help expedite cash transfers for unexpected expenses.
    • Aging parents and their adult children. Joint accounts can help adult children manage their parents finances, including bill payments and medical expenses, even from a distance, as needed.
    • Business partners. Joint bank accounts make it easy for business owners to share financial responsibilities, like paying vendors and making incidental purchases like office supplies.

    An added bonus for a joint account is that you may find it easier to meet your banks minimum balance requirement thats necessary to waive fees and enjoy higher interest rates on your funds with more than one account holder.

    Benefits Of A Joint Bank Account

    What are the benefits of a joint bank account? – Which? top tips

    The biggest perk of opening a joint account is the convenience of having money in one place. A joint bank account can be helpful if you and someone else have joint responsibilities, like running a household or business, as it allows you to both contribute to and withdraw from the account, says Lauren Anastasio, a financial planner at SoFi, an online personal finance company. And pay the bills, of course.

    This gives multiple people access to the account to help divvy up responsibilities, Anastasio says.

    If youre a married couple who shares money and bills, for example, then having a joint account could make managing your finances much easier. After all, a joint account lets both of you cover expenses and pay bills with the money you share, versus having to have separate accounts and figure out how to split bills in another way.

    Joint accounts can also help couples take advantage of benefits that may not otherwise be available to them, says Kevin Condon, senior vice president of consumer deposit and small business product management at Bank of America. For example, pooling your money can help you meet the minimum balance requirements needed to get benefits like getting maintenance fees waived or rewards that result in lower interest rates on loans.

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    How To Keep Track Of Your Balance And Transactions

    Any account holders can track the transactions and balance at any time. You can do this by:

    • Signing into your internet or mobile banking and checking the statement

    • Checking your monthly paper statement or requesting one by post

    • Phoning your bank

    • Checking your balance at an ATM

    • Receiving balance updates by text message

    Frequently Asked Questions About Joint Bank Accounts

    Still have questions about opening a joint checking or savings account with a loved one? Weve rounded up the answers to the questions our readers are most commonly asking.

    While being married is the most common reason for opening a joint bank account, you can open a joint account with anyone. Roommates often open a joint account for shared expenses while parents might open a joint checking account or joint savings account to teach their children the basics of personal finance.

    Most major banks let you open an account online, including Chase, Wells Fargo, Bank of America and Capital One. If you prefer online banking, many top online banks, with no brick-and-mortar locations, also allow you to open a joint account.

    In general, our recommendations for the best checking and savings accounts stand when opening a joint account. Because APYs and fees can change on a dime, our recommendations may change at times too. However, Ally, Capital One, Alliant and SoFi are consistent favorites for joint accounts.

    If you and the other account holder are married and filing together, your taxes wont be anymore complicated. Interest earned on the joint account is reported on your tax return. But if youre filing separately or arent married, your tax situation becomes a little more complicated and can vary by state. Its best to speak to a tax professional if you arent sure.

    Check with your specific financial institution regarding account closure.

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    What Happens To A Joint Account When One Person Dies

    Joint accounts in most states are classified as right of survivorship, which means the account and its funds go to the surviving co-owner. If youâd like someone else to receive your share of the account, you can designate a beneficiary and change the account to âpayable on deathâ or âin trust forâ.

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