Is a Joint Account Right for Your Relationship?
If you’re newly married or in a serious relationship, the opportunity to build a life together can be exciting. But as your lives become intertwined, so do your responsibilities – particularly when it comes to your finances.
For many couples, opening a joint checking account or a joint savings account is the first step. In fact, some studies have found that couples who pooled their money in shared accounts had happier long-term relationships.
But before you make this big step, it’s important to communicate your feelings about combining your finances. It’s also helpful to understand how joint accounts work and know the benefits and challenges that come with them.
What Is a Joint Account?
A joint account is a shared account, such as a checking or savings account, that two or more people own together. Joint account owners have equal access to the funds, regardless of who deposited them.
While married couples have traditionally shared joint accounts, there are no limits to who can open one. Unmarried couples, a parent and child, roommates, and business partners can all open joint accounts for a helpful way to manage shared finances.
How to Open a Joint Account
Opening a joint account is as simple as getting a standard checking or savings account. When signing up, indicate on your application that you’d like a joint account and fill in both partners’ personal details. Both of you will need to provide your Social Security number and an ID such as a driver’s license or birth certificate.
You and your partner can decide whether both of you must authorize access to the account or if each of you can access the account independently. While the former option may prevent one of the account owners from misusing the shared funds, it makes managing the account less convenient.
If you trust each other and have open communication about your money, giving each person the freedom to access the account on their own makes banking much easier.
For couples, joint accounts offer many practical benefits.
Pooling your money in a single checking account makes it easier to manage bills. Just make sure you have clearly defined each other’s financial responsibilities – like who pays the rent and who pays the daycare bill – to ensure there are no misunderstandings or late bill payments.
Saving on Fees
If you keep a higher account balance together than you would if you had separate accounts, this could help you avoid an account service fee.
Paying bills from a shared account makes it simpler to track spending and monitor your available funds. This helps you plan your finances better and avoid surprises.
Having a shared savings account also helps you work together to reach a savings goal, like a dream vacation, new car, or down payment for a mortgage. Pooling your savings could also help you maintain a balance that earns higher dividends, such as through American Heritage’s High-Yield Savings Account or one of our competitive Money Market Accounts.
Less Red Tape
If the unthinkable happens, and one partner dies or is incapacitated, having shared funds makes it easier for the other partner to access the money without going through a complicated legal process.
If you and your partner each have larger amounts of savings, and you’re concerned that combining your money in one account will cause you to exceed the $250,000 limit on federally insured deposits, here’s some good news. That limit applies to each account holder, not to an individual account. Whether you combine your cash or keep it separate, you’ll be able to access the full amount of federal insurance for your deposits.
You should also be aware of these possible challenges.
It Takes Trust
With a joint account, it’s very easy for one person to withdraw funds or rack up debit card purchases without their partner’s knowledge. Be sure that you understand each other’s spending habits and financial picture to avoid the financial disaster that can result from a dishonest or irresponsible partner.
Loss of Privacy
Sometimes keeping secrets from a partner is necessary. For example, if you want to buy your partner a gift or plan a surprise, having a joint account may make it harder to keep the surprise a secret.
What if one partner has financial problems? Combining funds could put the other person at risk. For example, if one partner has outstanding debts, creditors could come after the funds in a jointly owned account.
If one person contributes more to the joint account than the other, or takes more responsibility for paying bills, this can lead to resentment.
See What’s Best for Both of You
It’s important to understand your partner’s needs and expectations and be transparent about your own. Some couples prefer to share all their accounts, while others keep their money completely separate.
And many couples have found success with a “yours, mine, and ours” approach that does a little of both. Couples can create a joint checking account for shared expenses (like the mortgage and utilities), while also maintaining individual accounts to use for their own day-to-day expenses or for savings.