Joint Bank Accounts: Pros & Cons

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.  

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. 

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.

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

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.