Practical money matters by Nathaniel Sillin
HAVE YOU recently married, moved in with a new roommate, seen a child off to college or started managing a relative’s finances? If so, the change in your relationship dynamics could prompt you to consider tying part of your financial lives together by opening a joint bank account.
You might enjoy the conveniences a joint account offers or you could see it as a symbolic step in your relationship. You can open a joint account at an online-only bank or a bank’s local branch. But, before you open one with someone else, you should consider the potential benefits and drawbacks of the arrangement.
Individual and joint accounts are similar in many ways. With a joint account, both co-owners can deposit or withdraw money as if it’s an individual account. The account holders can also write checks, make online payments or transfers and use the account’s debit cards – if it offers them – to make purchases or withdrawals.
Let’s start with a few situations in which you might want to use a joint bank account, followed by examples of why the arrangement might not make sense for you.
You might want a joint account if you share financial responsibilities with someone else. Sharing a joint account could be a good option if you’re married or living with a significant other. Some couples keep their individual accounts but also create a joint account into which they deposit a portion of their paychecks to pay for household expenses or a shared savings goal.
With two people contributing to and watching a shared account, it could be easier to meet minimum-balance requirements and identify savings opportunities. Some accounts also offer higher interest rates the more money you have deposited in them.
A shared account could also help you care for rela-
tives, whether they live nearby or in another state. With co-owner access, it is easy to deposit or transfer funds online and at a bank branch, pay the family member’s bills from the account and keep an eye on the its activity and balance.
But beware – joint accounts give everyone involved full ownership of their money. No matter who makes the deposit, once money is in a joint account, each member can remove it and can legally spend it however he or she wants. In other words, you might not have any recourse if your new roommate raids a joint account and spends your rent money on a weekend getaway.
A joint-account holder’s debt could also spell trouble for everyone named on the account. Because every joint-account holder has equal rights to the money, creditors can go after the money in such accounts if they sue one of the affected account’s holders. That means that all the money is at risk if one holder is sued, falls behind on bills or doesn’t pay taxes.
If you’re considering using a joint account to help manage an older relative’s finances, a convenience account or power of attorney might be a safer alternative.
Communication and trust are vital to managing a joint account. Lack of communication between joint-account holders could lead to low or overdrawn balances and corresponding fees. It can also lead to disputes if the owners have different ideas of how the money should be spent.
Some co-owners make an informal agreement before opening an account together. Although it won’t have legal backing, you could create a rule that you have to ask the other person before spending, say, $150 or more. Using a mobile app to check a joint account’s balance before making a purchase could also help you avoid expensive mistakes.
BOTTOM LINE: While joint bank accounts let two or more people share access to their funds, the convenience of the arrangement can sometimes be outweighed by the risks it poses to the co-owners. Even if you trust your co-owner, having a clear understanding of the intention behind the account and how the money will be used is important to avoiding arguments and mismanagement of your joint funds.
Nathaniel Sillin directs Visa’s Practical Money Skills For Life financial education programs. Follow him on Twitter at twitter.com/PracticalMoney. His articles are intended to provide general information and should not be considered legal, tax or financial advice. Always consult a tax or financial adviser for information on how the law applies to your individual financial circumstances.