Convenient access to pooled resources, higher savings, expense tracking, and successful budgeting have never been easier with joint bank accounts. In addition to these perks, a joint bank account earns more interest since it carries a higher average daily account balance, promoting healthier credit.
However, for every advantage comes risk and complication. Before opening a joining bank account, it’s better to dig deeper and weigh the pros and cons of all options.
In this article, we’ve covered everything you may want to know about joint bank accounts.
What is a joint bank account?
Joint bank accounts work like any other standard bank accounts, except that there are multiple authorized account holders. Aside from bank chequing or savings accounts, you can also merge the accounts for your credit card, line of credit, loan, or mortgage payments with another party.
Authorized users can deposit, withdraw funds, or do Interac e-transfer and share equal responsibilities for any payments and fees they incur. They have the terms “and” and “or” between their names in their joint account. If you can see “and,” that means both/all users can access the funds. Conversely, if you can see “or,” that means only one of the users can sign.
Jointly held accounts can be either on a permanent or temporary basis. For example, married couples opt for a permanent joint account where they can both deposit their salaries. Parents can open a temporary account where they can save funds for their kids until the children become legal adults (more of this later).
Who finds joint bank accounts useful (and risky)?
A joint bank account is mainly designed for anyone who shares expenses and financial goals with one or multiple holders. Listed down below are the individuals who can benefit a lot from joint bank accounts, alongside potential drawbacks they should factor in first.
1. Married Couples
In marriage, couples treat their money as a joint asset. That’s why they tend to open a joint account after living under the same roof. It helps them pay their household bills much easier and eventually build up more savings. In fact, one study reported that married couples are much happier in their relationship after opening a joint account.
Some couples aren’t on the same boat with their spouses financially, however. In this case, it’s best to keep your savings account separate. You can open a joint account intended for your living costs and other routine payments.
You don’t have to tie the knot just to share a bank account. Like a married couple, you and your significant other can pool your money and manage it well with the help of a joint bank account.
First, there’s no need to pay bills twice. Also, planning your budget and sticking to it can be a lot easier. Lastly, if either of you has to be away for an indefinite time frame, you or your partner can handle all the financial matters.
It’s still, nonetheless, unavoidable to doubt the future, if not your partner. If you’re a bit stressed about it, you can set up a joint account where you deposit a limited amount of money. Meanwhile, you can keep your primary savings in separate accounts under your name only. Otherwise, you simply establish clear ground rules with your other half.
If you’re a parent, you may want to open a custodial account that you can temporarily manage while your child is still a minor. Once your child turns 18, he or she can withdraw funds saved in that account and use them however they wish.
Conversely, you can open a regular joint chequing or savings account (some are targeted at underage consumers) at any bank or credit union with your child. Your child can access the money with an account, but you can still monitor their account activities and see how they manage their money. If things go sideways, you can teach them how to deal with it. It’s a great way to hone their financial management practice.
However, in most cases, the government and financial institutions consider all the money in your joint account. What usually happens is that the more savings you have in your account, the less likely it is for your child to get student financial aid in the future.
4. Ageing Parents
As we’re getting older, so are our parents. Set up a joint account with your parents now so you can manage their potential future finances. These include regular caregiving expenses, emergency medical care costs, hospital or hospice bills, or funeral expenses.
It may seem awkward for others to save up for all of these now, especially when their parents are still alive and kicking. But, let’s be practical. It’s the best way to honour your parents’ wishes and to get rid of both emotional and financial pressures when the time comes.
Your savings for your ageing parents are safe against inflation. However, they won’t be safe from your financial liabilities related to your debts, accidents, divorce, or bankruptcy. Also, transferring money to the account for your parents can disqualify them from getting government benefits, like Medicaid.
5. Business Partners
The convenience of paying bills and budgeting brought by consolidating all your finances in a joint account can also be applied when running a business. You can streamline your business’ financial logistics with your business partner and have equal ownership.
Additionally, in terms of business, there are two depositors in a joint account. Deposits are controlled at the provincial level. For example, DICO is the Deposit Insurance Corporation of Ontario. Learn more about your province’s deposit regulations.
Creditors may vary, but there’s a tendency that they’ll satisfy your partner’s debts by taking funds from your joint account. That’s still possible even if you’re the only one who’s making deposits withdrawals in your account. As such, run a financial background check on your business partner before setting up a joint account together.
Since you and your housemates share living expenses, paying them can be much easier if you open a joint account. More importantly, it can help you when you have to take legal action against your housemate. If you sign a lease and your housemate refuses to pay, the lessor can evict both of you legally. In this case, the tracking of your joint account can prove things in small claims court.
How to Open a Joint Account
For starters, make sure that you and the other parties already agree to the fair use of your soon-to-be joint account. Afterwhich, follow this quick step-by-step guide to opening a joint account:
- Pick a financial institution. You can go over through Lendforall to check a variety of lending institutions.
- Have your documents ready (e.g., driver’s license, state’s ID, passport, marriage license (if married), birth certificate (if family-related), social security number, or taxpayer identification number).
- Fill out the application forms required by the financial institution of your choice (either in person or online banking transactions).
- Choose the best type of joint account that best suits your financial situation (if unsure, ask the institution for some advice).
Here are some of the most common joint bank accounts:
Joint Tenants with Rights of Survivorship (JTWROS)
- Available for everyone
- All account holders have equal access and responsibility
- If one account holder dies, all funds will be transferred to the surviving account holder
- Not subject to probate
- Creditors can collect against this account, regardless of who deposited the balance
Tenants by Entirety (TBE)
- Only for married and live-in couples
- One account holder can’t withdraw funds without the permission of the other
- If one account holder dies, the entire balance will become the property of the surviving account holder
- Not subject to probate
- Creditors can collect on the acquired funds (only with the permission of the account holders), not on the total balance of the account
- Funds belong to an owner (usually elderly or incapacitated)
- On behalf of the owner, an agent (healthy family member or the owner’s trusted person) uses the account’s funds to manage the owner’s expenses
- Requires power of attorney, a legal document proving that the owner (principal) grants the agent legal authority to make decisions
- If the owner dies, funds will be distributed according to their will
- Creditors may be allowed to collect against this account, and the agent has to prove that don’t they have ownership over the bank account
Whether you’re opening deposit, mortgage, or loan accounts, the other party should be present at the financial institution. This is especially necessary when opening a joint credit card account. In most cases, you have to add a secondary authorized user, and you need their signatures during the application.
It’s crucial to consider how much financial independence you want to keep when opening a joint account. Take your own personal and the other party’s situations into account to figure out what’s the best for both of you. If your worries are debt-related, get a free debt consultation now!
Lauren Cordell is a freelance writer and financial analyst by profession. She finds joy in penning her knowledge about money and finances for various sites. When she’s off duty, Lauren spends her free time at home cooking, play puzzle games, and cook food for her family.