Joint Bank Account: What Is It And How Does It Work?

Joint bank accounts are powerful financial tools for a wide range of scenarios. From building responsible financial habits to sharing responsibilities, joint bank accounts offer a multitude of positive features. However, it’s important to note that some of these same benefits could work against you in certain situations.

The information below can help you learn more about joint bank accounts—including joint checking accounts and joint savings accounts—and how these accounts with more than one owner may benefit you.

What Is a Joint Bank Account?

Joint bank accounts have more than one owner and operate just like individual savings or checking accounts. The account owners may be business partners, spouses, couples or even parents opening up a bank account for a college-bound teen. All account owners have the same privileges, such as making withdrawals and deposits and writing checks or making debit card transactions.

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:

• Married couples and domestic partnerships. 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 bank’s minimum balance requirement that’s necessary to waive fees and enjoy higher interest rates on your funds with more than one account holder.

Joint accounts also can protect account holders in the event of death, as the majority are established with “rights of survivorship.” When one account holder passes away, this feature allows another joint account holder to retain access to the shared account. Without survivorship rights, legal procedures could restrict access to funds for funeral, estate and other timely expenses.

In summary, joint bank accounts can simplify finances and offer virtually any relationship the ability to save and spend from a single account. This can, for example, make budgeting with a spouse easier than reconciling separate individual accounts each month.

Cons of Joint Bank Accounts

In some situations, certain beneficial features of joint bank accounts could become complications. Here are some scenarios to keep in mind as you consider whether a joint bank account is right for you:

• Access. A single account holder could drain the account at any time without permission from the other account holder(s)—a risk of joint bank accounts during a breakup.
• Dependence. With parent and child accounts, children could become overly reliant on parents to add funds to make up for poor spending habits.
• Inequity. In households where incomes between partners differ, one account holder could feel they’re contributing more or less. Without a good pattern of communication about financial issues, this could lead to arguments.
• Lack of privacy. With joint accounts, all account holders can see every transaction in the account. This could create a level of visibility that makes one or both potential account holders uncomfortable.
• Shared liability. If one account holder mismanages funds, the other account holders are liable. Creditors also can come after funds in a joint account to satisfy one account holder’s debts, regardless of who deposited the funds in the account.
• Reduced benefits. If parents open a joint bank account with their child, the assets in the account could reduce awards for college financial aid. The same applies to accounts that adult children have with aging parents, because how money in a joint account is used could impact a parent’s eligibility for Medicaid.

If you’re considering opening a joint bank account, it’s vital to trust those who share ownership. Without trust, a joint account could create more headaches than help.

How Do Joint Bank Accounts Work?

A joint bank account works similarly to an individual bank account, except that a joint account has two or more owners that own the account equally.

At first glance, joint bank accounts may be something you associate with married couples. Yet owners of joint accounts can be anyone, including spouses, siblings, friends or business partners.

With joint accounts, all account holders share equal ownership over the assets in the account. Anyone can deposit or withdraw funds at any time without the permission of any other account holder.

How to Open a Joint Bank Account

To open any type of joint account, you and the joint account holder will need to provide certain documentation to the bank where you’ve chosen to open the account.

What You Need To Open a Joint Bank Account

To open a joint bank account, all account holders must complete the required account application. Each applicant must also provide a valid government-issued I.D. (Social Security card, driver’s license, state-issued I.D. card, passport).

Things to Know When You Open a Joint Bank Account

Each account holder with a joint bank account is individually insured up to the FDIC (Federal Deposit Insurance Corporation) limit of $250,000 per depositor, for each account ownership category, at a bank. Credit union accounts receive the same protection from the NCUA (National Credit Union Administration). This translates to a single joint account, with two owners, enjoying up to $500,000 in protection. An individual account would only enjoy half that protection in the event of a bank or credit union failure.

Who Owns the Money in a Joint Bank Account?

Money in joint bank accounts belongs equally to all owners of the account. At any time, any account owner can make deposits or withdrawals from the account up to the bank’s maximum daily limits.

In the event that one of the account owners dies, the money in the account doesn’t have to go through probate. Instead, the money and account ownership passes directly to the other account holder(s). However, it’s important to note that the surviving account owner may have to provide a copy of the deceased account owner’s death certificate to the bank to transfer ownership of the assets.

How to Close a Joint Bank Account

It’s a simple process to close a joint checking account or joint savings account. Here’s a simple process to follow:

1. Stop all withdrawals and automatic transfers. This is especially important with bills you’ve set up to be debited from your account each month.
2. Bring your account balance to zero. Once all scheduled withdrawals are complete or stopped, you can write a check or initiate a transfer of funds to deposit the money in another account of your choice.
3. Close the account. Once your balance is zero, ask your bank to close the account. Your bank will have specific procedures you will need to follow to close the account permanently.

Is a Joint Bank Account Right for You?

As you weigh whether a joint bank account may be right for you, have a candid conversation about finances with the prospective account holders. All account holders should agree to the broad terms, like how the money will be used and who’s responsible for paying which expenses with the account.

You also may want to agree on regular intervals to review your shared finances. Having a schedule can play a crucial role in reminding all account holders that each has a say and helping head off financial complications before they become unmanageable.

You may find that a joint bank account is a part of your financial plan that you use in conjunction with individual accounts. For example, couples might choose to pay expenses like housing and utilities out of a joint account, but prefer to pay for their own expenses out of individual accounts.

The Bottom Line

Now you’re equipped with the details of joint bank accounts. As you decide whether a joint account is a fit for you and your scenario, remember to keep conversations with account holders open and honest. Trust is the most valuable asset you’ll ever invest in a joint financial account.

Frequently Asked Questions (FAQs)