What is a joint bank account?
Key takeaways
- Joint bank accounts can work for couples, parents with children who want to share access to their money and others.
- Joint bank accounts should only be opened with someone you trust.
- Joint bank accounts offer advantages like more insurance coverage, but they also have potential pitfalls such as overdrafts and a lack of privacy.
A joint bank account is an account shared with another individual for things such as paying the bills, depositing paychecks or saving for a vacation or down payment on a large purchase, such as a house or car.
Most often, joint accounts are held by one person and a spouse or partner, family member or business partner.
How do joint bank accounts work?
Joint bank accounts work essentially the same way as other bank accounts. Joint checking accounts, for example, let you write checks and use a debit card, just like regular checking accounts. Joint savings accounts work like regular savings accounts, keeping your money safe and paying interest.
The primary difference is that both people who own the account have full control over it. The money in joint accounts belongs to both owners. Either person can withdraw or spend the money at will — even if they weren’t the one to deposit the funds. The bank makes no distinction between money deposited by one person or the other, making a joint account useful for handling shared expenses. So a joint bank account should only be opened with someone you trust, since that person has equal control over the account’s funds.
Pros of a joint bank account
Although joint bank accounts can be useful for anyone who wants to share access to their money, they’re particularly beneficial for these reasons:
Convenience
Joint bank accounts make it easy to pay bills and track expenses with your co-owner, as each account holder can see the balance and add money to the account. If you pay for utilities, groceries and other joint household expenses, you could use the account to streamline bill payments by linking the account to your online banking service.
A potentially larger account balance
If both account holders are contributing money, joint accounts can have a larger balance than individual accounts. This could help you earn more interest on savings or avoid penalty fees.
More insurance coverage
You have insurance coverage at banks that are insured by the Federal Deposit Insurance Corp. (FDIC) (and at credit unions insured by the National Credit Union Administration (NCUA)) for up to $250,000 per depositor, per insured bank, for each account ownership category. Because joint bank accounts are a different ownership category than single-owned accounts, you’re eligible for more insurance at one bank.
In the joint account, each account holder gets up to $250,000 of FDIC or NCUA coverage, bringing your total coverage as a duo to $500,000 for that account ownership type. If you also have single-owner accounts at this same bank, you’re eligible for another $250,000 of FDIC coverage.
If you’re curious about how much coverage you can have at one bank with different account types, you can use the FDIC insurance calculator or the NCUA share insurance calculator to test out different scenarios.
Facilitating collaborative decision-making
A joint account can be a useful tool for partners looking to save for a down payment on a home, plan a wedding or save for a shared future. A joint account makes it easy for both account holders to deposit money and make withdrawals, allowing each person to feel like an equal participant. In relationships, this can improve communication and encourage each partner to get involved in financial decisions.
Cons of a joint bank account
Joint bank accounts also have their fair share of cons. Here are a few of the potential pitfalls you should keep in mind before opening a joint bank account.
Potential for overdrafts
With a joint bank account, both parties have unrestricted access to any funds in the account, which could potentially lead to misuse or mismanagement. For example, if one person withdraws more money than there is in the account, the other partner will also be on the hook for any overdraft fee.
Trouble if your relationships ends
When you split up with a partner, having a joint account can make things complicated. If you have an account with a friend, family member or your partner, you may want to consider closing the account and opening a new one if the relationship ends. Not only will you want to remove the person as joint owner of the account, you’ll also want to avoid any arguments over how to divide the funds.
Subject to creditors
Another downside of joint bank accounts is that both parties could be responsible for any debts the other person may incur. This means that even if one person loses a lawsuit and owes money to a creditor, the other person is liable for the debt as well.
Lack of privacy
Because both you and the other account holder can see each other’s transactions and financial activities, it can be harder to keep transactions secret. The lack of privacy between partners can put a strain on the relationship. If you have a joint account, discuss boundaries around spending and saving with the other account holder. Make sure you are both on the same page about how the money will be used and what information is off limits.
Difference between a joint bank account and a single-owner bank account
| Joint bank account | Single-owner bank account | |
| Ownership rights | Both co-owners can make withdrawals, deposits and transactions | Only the sole owner can make withdrawals, deposits and transactions |
| FDIC insurance | Up to $500,000 in FDIC and NCUA coverage | Up to $250,000 in FDIC and NCUA coverage |
| What happens to the money if owner dies | Passes to the co-owner | Passed to beneficiary if one is named, or can be subject to probate |
Is a joint bank account right for you?
For many joint account owners, sharing the responsibility of managing money comes down to one personal characteristic: trust. If you’re planning to share a bank account, think long and hard about who you share it with.
If, for example, you share an account with someone who has trouble sticking to a budget, you could run the risk of seeing your money in the account being withdrawn faster than you can say “balance inquiry.” Only open a joint bank account with someone you trust implicitly, because they’ll have access to the funds you deposit and financial information of that account. But opening a joint bank account can be a win-win situation, especially for two people who are on the same financial wavelength.
Some examples of times when a joint bank account makes sense are:
- Couples who manage their money together and share household expenses
- Adults sharing a joint bank account with their elderly parents
- Business partners sharing a joint business account to cover expenses and payroll
- Parents opening a joint account with their children to oversee their savings as they learn positive money habits
A joint bank account makes sense — and can make things easier — for those that incur expenses jointly or have common savings goals, such as a down payment on a home.— Greg McBride, CFA, chief financial analyst for Bankrate
How to open a joint bank account
Opening a joint bank account is fairly straightforward, but not all banks or credit unions offer joint bank accounts, so if you’re interested in opening one, make sure the bank you choose does so before signing up for an account.
When you go to open the account, you can either select the “joint account” option on an application or add a co-applicant after filling in one person’s details. Some banks only allow adding a co-owner after an account has been opened by one person.
Here are some things to consider and plan for before opening a joint account:
- Discuss parameters with the joint account holder. For example, you may want to discuss with your partner or other potential account holder what happens to the account after one of you dies. As one consideration, if you name your partner as a beneficiary on your life insurance policy but then both of you die in an accident, the life insurance payout might go directly into the joint account. If you don’t want that to happen, you could update your beneficiary.
- A joint bank account is not a substitute for a will. If you open a joint bank account, you should still create a will or trust that details how your assets should be distributed after you die. Otherwise, state law will determine who will inherit your assets.
What do banks check when opening a joint account?
When you open a joint bank account, banks will typically ask for the same personal information they require when you open a traditional bank account.
Each co-owner must provide a government-issued ID and some banks may require proof of address. The application will also require the personal details of each account holder, including their full name, date of birth, Social Security number and contact information. In some cases, only one person will need to open the account, but the co-owner will have to verify their information later.
How to close a joint bank account
When you have a joint bank account, you need to consider more than just your own finances. If you need to close the account, you’ll have to work with the shared account owner and follow these steps:
- Withdraw all money. You will want to withdraw all money in the joint bank account before closing it. However, before withdrawing the funds, both account owners need to discuss the fund breakdown and agree on how much they’ll withdraw as their respective allotment. You’ll also need to make sure no transactions are going to come through after you close the account. Banks can reopen accounts in these instances and even charge you overdraft fees. If you don’t keep track and bring your account back into the positive, this could affect your banking reputation and keep you from opening accounts in the future.
- Close the account. Some banks require both account owners to close a joint account, providing written permission, though many banks allow for just one of the account holders to close the joint account. Review your account agreement and the bank’s policy first. If you don’t have a separate, individual bank account to move your funds into, you can open one in your name before closing the joint account.
Who pays taxes on a joint account?
If you and your joint account holder are married and file one tax return, all you have to do is include the interest in your tax filing. If you file separately or aren’t married, things get more complex, depending on which state you live in. Check with a tax advisor if you have questions.
Bottom line
There are risks involved in opening a joint bank account, including the risk that one account owner goes rogue and withdraws all the money, or the risk of collections activity. Joint bank accounts nevertheless have their place and work for a wide range of consumers — especially couples who share household finances.
Whether to open an account with another person is a personal choice. Just make sure you know the pros and cons, and that you approach any decision to open a joint account with caution.
