When might opening a joint bank account make sense?

BY NATHANIEL SILLIN

Did you recently get married, move in with a new roommate, see a child off to college or start managing a relative’s finances? The change in relationship dynamics could prompt you to consider tying part of your financial lives together by opening a joint bank account.

You might enjoy the conveniences a joint account offers, or you could see it as a symbolic step in your relationship. But before you open a bank account with someone else, consider the potential benefits and drawbacks of the arrangement.

First, here’s a quick introduction to joint accounts. Individual and joint accounts are similar in many ways. You can open a joint account at an online-only bank or local bank branch. However, with a joint account both co-owners can deposit or withdraw money as if it was an individual account. The account holders can also write checks, make online payments or transfers and use the account’s debit cards (if it offers them) to make purchases or withdrawals.

Let’s start with a few situations where you might want to use a joint bank account, followed by examples of why the arrangement might not make sense for you.

You might want a joint account if you share financial responsibilities with someone else. Sharing a joint account could be a good option if you’re married or living with a significant other. Some couples keep their individual accounts and also create a joint account where they deposit a portion of their paychecks and use the money to pay for household expenses or a shared savings goal.

With two people contribution to and watching a shared account, it could be easier to meet minimum balance requirements and identify savings opportunities. Some accounts also offer higher interest rates the more money you have in the account.

A shared account could also help you care for a family member. A joint bank account could help you care for relatives, whether they live nearby or in another state. With co-owner access, it’ll be easy to deposit or transfer funds online and at a bank branch, pay the person’s bills from the account and keep an eye on the account’s activity and balance.

But beware, joint accounts give everyone full ownership of the money. No matter who makes the deposit, once money is in a joint account, each member “owns” it and can legally spend it however he or she wants. In other words, you might not have any recourse if your new roommate raids a joint account and spends the rent money on a weekend getaway.

A joint account holder’s debt could also spell trouble for everyone on the account. Because every joint account holder has equal rights to the money, creditors can go after the money in a joint account if they sue one of the account holders. Meaning all the money is risk if one person gets sued, falls behind on bills or doesn’t pay taxes.

If you’re considering using a joint account to help manage an older relative’s finances, a convenience account or getting power of attorney may be potentially safer alternatives.

Communication and trust are vital to managing a joint account. Lack of communication between joint account holders could lead to overdrawn accounts or low balances, and the corresponding fees. It can also lead to disputes if the owners have different ideas of how the money should be spent.

Some co-owners make an informal agreement before opening an account together. Although it won’t have legal backing, you could create a rule that you have to ask the other person before spending $150 or more. Using a mobile app to check a joint account’s balance before making a purchase could also help you avoid mistakes.

Bottom line: While joint bank accounts let two or more people share access to an account, the convenience of the arrangement can sometimes be outweighed by the risks it poses to the co-owners. Even if you trust the other co-owner, having a clear understanding of the intention behind the account and how the money will be used are important to avoiding arguments and mismanagement of your joint funds.

Nathaniel Sillin directs Visa’s financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney.