Joint Bank Accounts: What You Should Know
Joint Bank Accounts: What You Should Know
Wednesday, May 1st, 2024
The Importance Of Understanding Your Banking
When it comes to personal banking, there are many distinct ways to open, set up, title, and manage an account.
Fully comprehending the capabilities you have as a sole account owner, custodian, power of attorney (POA), or joint owner is imperative since not all provide the same level of access.
With that said, joint accounts are worth understanding since there could be many scenarios that may lead you to open a joint account.
Like any account ownership type, there are benefits and factors to consider, most of which you should and will want to be aware of.
Before discussing that, let’s discuss what constitutes a joint account and when they are most common.
What’s A Joint Bank Account?
Simply put, a joint account is an account with more than one account holder, not a POA, custodian, or conservatorship, among other titles.
Most, if not all, banks allow you to open a joint account, or convert a sole account into a joint account.
Think of your checking, savings, and certificate of deposit (CD) accounts, among other banking, FDIC-insured accounts.
Converting a sole account into a joint account is typically a smooth process, and it may often require signatures from current and newly added account holders.
When Are Joint Accounts Most Common?
Joint accounts are most common between spouses or domestic partners; however, there’s a long list of other scenarios where having a joint account may occur.
Other common scenarios are:
- An Individual & Their Parents (To Help Manage Finances)
- Parent/s & Child (To Help Manage Finances)
- Older & Younger Sibling (To Help Manage Finances)
- Unrelated Individuals Working Towards A Common Goal (Saving For A Business Venture)
- Related Individuals Working Towards A Common Goal (Saving For A House Down Payment)
Many situations and reasons will fall outside this list, and that’s perfectly fine since your personal matters will be different from the next person’s.
Now, let’s talk about the benefits and factors to consider.
Benefits:
1. Builds Trust & Promotes Transparency
Particularly for spouses and couples, financially managing a bank account together can create or further build on the existing trust.
A joint account can even build trust between individuals who aren’t related by marriage, whether that’s a father, mother, son, friend, or potential business partner.
Along with trust comes the transparency factor since every account holder will be able to see all account activity.
2. Convenience
Joint accounts can also make your banking more efficient, whether that’s transferring money from one account to the next, combining balances, or managing expenses.
While there are solutions to transferring money (for example, Zelle & Venmo) and managing expenses (splitting expenses), a joint account can make this much more convenient.
One less account could mean one less app, login credentials, and bank you must deal with, which can provide peace of mind, too.
3. Simplifies Legal & Life Matters
Joint accounts can also simplify, and avoid altogether, certain unfortunate legal and life matters, for example, death.
If one account holder passes away, and there exists another account holder, then the account continues to function as usual with no restrictions.
If an individual passes away and there is no other account holder or beneficiary, a legal battle can ensue between the family, or the assets may be forced to go through probate.
Factors To Consider:
1. Equal Access & Powers
All account owners have equal access and can transact whenever and however they desire. This includes making deposits, withdrawing, transferring funds, or closing the account.
Assuming all account holders are on the same page, this won’t be an issue; however, this isn’t always the case.
For example, issues may arise if married individuals are going through divorce proceedings and one person decides to make an unfavorable transaction (could be withdrawing funds or closing the account).
2. Legal Issues Affect The Account Equally
Since all account holders are equal owners, the assets can be affected by any account holder’s legal issues, mainly bank levies.
A bank levy is a process used by creditors and debt collectors when attempting to collect an unpaid debt. Even the IRS uses this collection measure to collect unpaid taxes.
A bank levy will freeze the assets in the account, meaning no withdrawals, until the whole situation is sorted out, and this can take weeks.
3. No Privacy
All account owners see every withdrawal, deposit, purchase, and any other type of transaction that occurs within the account.
This can make purchasing a large ticket item difficult if all account owners don’t have the same spending habits.
For married individuals, this may not be an issue; however, it can make purchasing a surprise gift difficult to keep secret.
Additional Factors To Note
There are several additional factors worth noting about joint accounts that can help you further decide.
A common question is if each account owner gets their own login, debit card, banking profile (meaning your number, address, email).
The answer to all is yes. Regardless of the relationship between account holders, each person has their own set of information that can be different from the other account holders.
Note that banks still follow privacy regulations, meaning one account owner can’t just walk in and inquire about another individual’s personal information.
Also, most, if not all, banks don’t allow an account holder to remove another. The account holder must voluntarily remove themselves, and this can complicate matters.
Also, if changes need to be made, for example, adding another individual or a beneficiary, all account holders must be present and agree on it.
Lastly, it’s entirely possible to turn a sole account into a joint account, which can help keep a history of all transactions.
Should You Open A Joint Account?
Opening a joint account isn’t the most difficult type of account to open; however, it isn’t a decision to take lightly.
Fully understanding the purpose of the account, expectations, and overall goal will be key when deciding.
A joint account may make sense for married and committed individuals looking to combine incomes to make managing their finances easier.
A joint account can also make sense if you’re looking to help your parents manage their finances, although other options may be more suitable.
Final Thoughts
The ability to open a joint account has been very effective in simplifying banking for certain individuals. And, what’s great is that many banks offer joint accounts.
While opening a joint account is easy, it helps to understand the overall workings and limitations you have as an account holder in a joint account.
This will ensure that you make the most informed decision at that time. Even if you decide against a joint account at that time, knowing how they function is still important.
More importantly, as time passes, it could be that for part of your banking, a joint account is the next best step.
Are you thinking about opening a joint account? Why or why not? Do you currently have a joint account?
Let us know your thoughts in the comment section below as we always look forward to reading what you have to say!
Thank you for reading and remember to Stay Financially Invested!
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The reviews and opinions mentioned in this article are solely of The Financially Invested Team and have not been endorsed or approved by any advertiser. The Financially Invested Team aims to independently review products and/or services so that you can always make the most educated decision to fit your financial and/or investment needs.