Joint Bank Accounts: Pros & Cons

A joint bank account is an account you share with another person. Learn how a joint account works and the pros and cons of opening one.

By Frances Coppola | American Express Credit Intel Freelance Contributor

8 Min Read | February 1, 2022 in Money

 

At-A-Glance

You can open a joint bank account with anyone – spouse, father, mother, daughter, son, friends, housemates.

But just about every pro of having a joint bank account can become a con, depending on circumstances. 

For example, joint bank accounts can make house sharing simpler and easier, but can lead to less privacy and greater liability for each individual.

A joint account is simply a bank account that is shared by multiple – usually two – people. Either one can deposit or withdraw funds. Sounds simple, right? Not so fast. Although recent academic research shows that couples who pool their finances in joint bank accounts are happier than those who don’t, sharing a bank account can lead to some fairly complex pros and cons.  

 

Who Can Open a Joint Bank Account?

Couples who live together often have joint accounts, but it’s also possible for parents to set up joint accounts with their children, siblings to have joint accounts, and even for unrelated people to set up a joint account – for example, house sharers. One growing trend is for elderly people to set up joint accounts with relatives, caregivers, or friends to ensure that their bills continue to be paid if they become unable to manage their own finances. There are different pros and cons of joint accounts for all of these groups. 

 

How Do Joint Accounts Work?

When two or more people have a joint account, each of the account holders has full access to the money in the account, whether or not they contributed any themselves. Joint checking accounts typically provide a checkbook and card for each account holder and, these days, online bank account access too. Most joint accounts only require one signature on a check, though it’s possible to set them up for multiple signatures.

 

Advantages of Joint Bank Accounts

Having a joint account can have considerable benefits, especially for couples. A comprehensive 2019 academic study reported in UCLA Anderson Review showed that 65% of couples who pooled their bank accounts reported being happier in their relationships than those who didn’t – and researchers found that the act of sharing accounts helped cause their happiness.1 But there also are benefits even for people just sharing a house as friends.

 
The pros of joint bank accounts for people in the same household include:

  • Simplicity: One account can help simplify paying for joint living expenses like rent and utility bills.
  • Visibility: Shared household income and expenses can appear on one statement that can be viewed by all contributors, making it easier to budget and track expenses together.
  • Equal access: Using a joint account can ensure that both parties have equal access to shared money, which may be especially useful if each person has different incomes.
  • Cost sharing: If one person does more of the household shopping than the other, equally contributing to a joint account can ensure neither party ends up bearing more of the cost.
  • Higher total balance: You might be able to maintain a higher positive balance in a joint account than in individual accounts, thus avoiding penalties and fines for falling below minimum balances, or for unauthorized overdrafts or payments returned due to insufficient funds.
  • Survivorship: If one of you dies unexpectedly, the other usually retains access to the money in the account without having to go through an expensive and time-consuming legal process. Check out “survivorship” rules to find out exactly how they work in your state.2

 

Disadvantages of Joint Bank Accounts

However, the advantages of joint bank accounts can under some circumstances transform into disadvantages:

  • Less privacy: Since other account holders can see all your financial transactions, you have less privacy. This can complicate things like buying your partner a birthday present or throwing a surprise party. More seriously, in some relationships it can enable financial abuse – when one person exerts control through finances.3
  • Potential disagreements: The fact that other account holders can spend your money without your knowledge or agreement can lead to disagreements, for example, if one person regularly spends beyond an agreed amount, such as in a household budget. Negotiating spending limits, perhaps by using credit cards with individual limits, can help to mitigate this risk.
  • Liability: If another account holder defaults on a debt, the creditor may be able to seize your money in settlement. Similarly, if you default on a debt payment, you may put your entire household at risk.
  • Logistical complications: If housemates or family members move out, or if relationships go sour, it can be challenging to sort out who owns what in the joint account.

Many people mitigate these risks by keeping their own personal checking and savings accounts plus a joint account for household bills and other shared expenses, into which each partner pays an agreed amount every month. Separate bank accounts can be particularly helpful when one partner is carrying significant amounts of personal debt, since they can limit the risk of the other partner having to pay in the event of default. However, separate bank accounts can’t necessarily protect the household income of a married couple, so if you are considering marriage and either you or your future spouse has significant personal debt, you may want to consult a lawyer with a view to setting up a prenuptial agreement.

 

Joint Accounts with Children or Older Adults

Many parents set up joint kids savings accounts with their children when they’re young. This can help the child to learn how to save and manage their money, with the parent keeping a watchful eye on how they use their account. These accounts are usually closed or transferred into the child’s sole name when they reach adulthood.

 
But there’s also a growing trend toward older people sharing joint bank accounts with younger people. Most often, the younger person is one of their children, but it can also be a more distant relative such as a niece or nephew, a friend or a caregiver. Sharing a bank account with a younger person can seem like a good idea for someone who is physically frail or has dementia: The younger account holder can manage the older one’s money, make sure bills are paid, do shopping for the older person and help to prevent them from being tricked by scammers. But there are pitfalls for both account holders:

  • Potential asset seizure: If the younger person gets into debt difficulties, the elderly person’s money can be seized by lenders to settle the younger person’s debts. The elderly person’s money could also be included in a divorce settlement.
  • Benefits eligibility: If the younger person pays any money into the account themselves, the elderly person’s eligibility for government benefits, including Medicaid, could be affected.
  • Academic financial aid: The elderly person’s money could be taken into account in applications for student financial aid, reducing the amount awarded.
  • Gift taxes: If the elderly person adds their adult child’s name to an existing account with a substantial amount of money in it, the IRS could view that as a gift for tax purposes.
  • Risk to beneficiaries: If the elderly person dies, “survivorship rules” can mean money in the account automatically goes to the younger person. This can enable the funeral and other expenses can be met, but it can also result in beneficiaries of the will not getting their entire inheritance.

 

Alternatives to Joint Bank Accounts

One alternative to a joint bank account is to add an additional card member or authorized user to a credit card. You and every additional card member would share the same credit card account which can then be used to pay for shared expenses like groceries, streaming service subscriptions, home furnishings, and maybe even gas if you share vehicles – all with the possibility of earning rewards points or cash back for purchases. However, like joint bank accounts, it’s important to note that adding additional card members can have its own risks. For example, the primary account holder is legally responsible for monthly payments, so it’s a good idea to make careful arrangements with whomever you choose to share your account with.

 
But there are other options as well. Particularly for older Americans, it may be worth checking out whether another arrangement would meet your needs better than a joint bank account or additional card member on a credit card. Alternatives include:

  • Signature authority on an elderly relative’s account: You’ll be able to write checks on their behalf, but your creditors won’t be able to seize the money and it won’t pass to you automatically on death.
  • Power of attorney: A legal agreement that gives you the power to make financial decisions and perform transactions on behalf of your elderly relative if they become incapacitated.
  • Revocable living trust: Your relative can open a revocable living trust with you as co-trustee, then open a bank account in the name of the trust with two account holders.
  • Guardianship: If your relative is unable to take responsibility for their own financial affairs, and you have no power of attorney, you can apply to the court for a guardianship order which makes you legally responsible for your relative’s finances.

If paying for funeral expenses and other bills after death is a concern, your relative can make their accounts “payable on death,” which means the money goes directly to the beneficiaries of their will without having to clear legal hurdles. It’s worth consulting a lawyer to ensure that this doesn’t conflict with a will or estate planning arrangements.

 

The Takeaway 

For many people, joint bank accounts are a boon. They simplify household finances and can help with budgeting and expenditure management. But some people prefer the additional privacy and control that comes from managing their own account. And separate bank accounts can help protect household income from individual debt default. There are many additional considerations, such as tax and benefit implications, and in some situations a joint account may not be the best solution. If unsure, it’s a good idea to consult with a professional tax or financial advisor.

Frances Coppola

Frances Coppola spent 17 years in the financial services industry before becoming a noted writer and speaker on banking, finance, and economics. Her work appears in the Financial Times, Forbes, and a range of other publications. 

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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