What Is a Joint Account?
A joint account is a bank or brokerage account shared between two or more individuals. Joint accounts are most likely to be used by relatives, couples, or business partners who have a level of familiarity and trust with each other.
A joint account functions like a standard account, such as a checking or savings account, and allows anyone named on the account to access its funds. All owners can withdraw cash, write checks, and make online payments.
Key Takeaways:
- A joint account is a bank or brokerage account shared by two or more individuals.
- Joint account holders have equal access to funds but also share equal responsibility for any fees or charges incurred.
- Transactions conducted through a joint account may require the signature of all parties or just one.
How Joint Accounts Work
Joint accounts work just like regular accounts, except they can have two or more authorized users. Joint accounts can be established permanently, such as an account for a couple into which their salaries are deposited. The account may also be temporary, such as an account between two parties who are contributing funds in the short term.
Bankaccounts held jointly between two parties may be titled with an "and" or an "or" between the account holders' names. If the account is listed as an "and" account, then both/all parties must sign to access the funds. If it is an "or" account, only one party must sign.
Accounts jointly held include deposit accounts at banks including checking and savings accounts, credit cards, and other credit products such as loans, lines of credit (LOC), and mortgages. The joint status authorizes all those listed on the account to full use, but also the responsibility for any payments, fees, or charges incurred.
Opening a joint account is as simple as opening up a single account. Both parties should be present at the bank when the account is open—whether that's a deposit account or another product like a mortgage or loan. For credit cards, adding a secondary or authorized user is akin to opening a joint account. In most cases, this requires the signature of the second party.
Uses and Benefits of Joint Accounts
Joint accounts can be helpful for their holders and provide several benefits. Many funds require minimum balances, particularly if the holder wants to access the benefits of a specific account type. By pooling their money, two people can bypass this requirement and reap the benefits of the account.
Opening a joint account may also be helpful to newer couples who are combining their finances. Couples may find it easier to have a single account into which they can deposit their paychecks and make payments for their rent or mortgage, bills, or other joint debts.
A senior may find it helpful to add one of their children or another authorized user to their accounts to pay bills and do routine banking on their behalf if and when they are not able to do so on their own.
Pitfalls of Joint Accounts
Joint accounts can cause problems, however, because they generally provide all parties unlimited access to the funds. Thus, if one spouse has difficulty controlling their spending habits, this may affect the other spouse, who may be more frugal. The frugal spouse cannot challenge the withdrawals or transactions of the other spouse with the bank because they are listed as a joint account holder.
Another thing to remember with joint accounts is that all parties with access are responsible for any fees. If your husband runs up your joint credit card, you are equally responsible for paying it back. Similarly, if your joint checking account goes into overdraft, you are liable for a negative balance.
The government may seize any funds in a joint account to satisfy an outstanding order. That includes back taxes that may be owed, child support, or other court-ordered garnishments.
It is best for both parties to discuss the responsibilities associated with opening a joint account before doing so. This can avoid any unnecessary problems and conflicts that may arise.
All parties should discuss the pros and cons of opening a joint account to avoid potential future conflicts.
Joint Account Rights
Several titling mechanics designate how the funds are divided if one of the parties on the account passes away. These options are required on brokerage accounts.
Joint Tenants with Rights of Survivorship (JTWROS): If one of the parties passes away, the assets in the account pass by the rule of law—outside of probate—to the surviving parties.
Tenants in Common (TIC): This allows each joint holder of the account to designate their beneficiary for their portion of the assets in the event they pass away. Instead of transferring by the rule of law to the second account holder, the assets are passed to the beneficiary. In addition, the assets may not be automatically split 50/50. The TIC designation allows the tenants to divide property ownership in any way they choose.
Joint Tenants option:This option mandates a 50/50 split of the assets in the joint account.
FAQs
Joint bank accounts offer many benefits, such as convenience, a larger account balance, and more FDIC insurance coverage, but they also have potential pitfalls such as overdrafts and a lack of privacy. When opening a joint bank account, both account holders must provide a government-issued ID and personal information.
Is there a downside to joint account? ›
Lack of privacy: While keeping secrets is never a great idea in relationships, you and your partner may want some degree of privacy in how you spend your money, which you won't get from having joint accounts. It could also be harder to pull off gifts for each other if your partner can see every purchase you make.
What are the dangers of a joint account? ›
A joint account might damage your credit score
Opening a joint account adds a financial link to the other person. This means companies will look at both of your credit histories as part of any credit checks.
What are the rules for joint bank account? ›
Joint: All transactions in the account must be approved and signed by all the account holders. If any one of the account holders dies, the account will be deemed inoperable, and the bank will pass on the balance in the account to the survivor.
How do joint accounts work? ›
A joint account is a bank or brokerage account shared by two or more individuals. Joint account holders have equal access to funds but also share equal responsibility for any fees or charges incurred. Transactions conducted through a joint account may require the signature of all parties or just one.
Who owns a joint account when one person dies? ›
Joint bank account holders generally have the right of survivorship, which grants the surviving account holder ownership of the entire account balance. The surviving account holder retains ownership regardless of which owner contributed the money, and the account doesn't go through the probate process.
Can one person withdraw money from a joint account? ›
Each account owner can get a debit card, write checks and make purchases. Both account holders can also add funds or withdraw them from the account. 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.
Can my wife empty your joint account? ›
If the funds in your joint bank account are considered separate property and owned exclusively by your spouse, they may legally be able to drain the account. Similarly, even if the account is community property, a spouse may be able to withdraw money for reasonable living expenses, legal fees, and children's expenses.
Is it a good idea to have a joint account? ›
Financial experts won't deny that joint accounts can have benefits for a couple, but for some experts those benefits can be maintained even with separate accounts. Plus, separate accounts may prevent uncertainties about each other's spending habits that occur with a joint account.
Does joint account hurt your credit? ›
Checking accounts, including joint accounts, are not part of your credit history, so they do not impact credit scores. Your credit report only includes information about your debts, and accounts have the same effect on your credit whether you are associated with the account as an individual or as a joint owner.
Who Pays Taxes on Interest From a Joint Bank Account? If you have a joint account, you both may have to pay taxes on a portion of the interest income. However, the bank will only send one 1099-INT tax form. You can ask the bank who will receive the form because that person has to list the income on their tax return.
Which bank is best for a joint account? ›
SBI, ICICI, HDFC, Ujjivan Small Finance Bank, Yes Bank, Kotak Mahindra, RBL Bank, DBS, IndusInd and IDFC First Bank are among some of the lenders offering joint accounts.
Who owns money in a joint bank account? ›
Both owners of a joint bank account own the money in it equally. That means you have the ability to deposit and withdraw funds as you wish – and so does the joint account holder. Since both people have equal ownership and access to the money, it's important to set boundaries regarding how the account will be used.
What are the two types of joint accounts? ›
In the United States, there are typically two types of joint accounts: survivorship accounts and convenience accounts.
Does a will override a joint bank account? ›
A joint account generally passes outside of the will because it is considered to be a non-probate asset meaning it passes directly to the surviving owner rather than through the will.
Can a poa withdraw money from a joint bank account? ›
Each person on the account has the legal authority to use the entire account balance for any reason. In contrast, a person holding a power of attorney also has access to the grantor's bank account, but he or she is legally required to use those funds for the benefit of the grantor.
Is it bad to have a joint account with your boyfriend? ›
A joint account can be a useful place to start, as long as you lay ground rules together for how much you each plan to contribute, how you're going to use the funds in the account and what you'll do if your relationship ends.
Is a joint bank account a good idea for a couple? ›
Previous studies have shown a link between holding a joint bank account and having a higher quality relationship. Perhaps couples with a shared account might prompt each other to consider how their purchase will affect their partners or might facilitate transparency around finances.
Is it better to have joint or separate accounts? ›
A joint account can work well if partners can openly discuss money matters and trust each other's financial decisions. However, if there are trust issues or communication barriers, separate accounts might be more appropriate to prevent conflicts and misunderstandings.
Is it bad to open a joint bank account? ›
When you open a joint account with someone, you create a financial link. If you both have a good credit score, this can improve your chances of being approved for a mortgage. However, if one of you has a poor credit history, this could drag down the other person's score.
