What Is a Joint Bank Account, and How Do They Work?

You might associate joint bank accounts with married couples or couples who live together. While those are common situations when a joint bank account can work, there are a number of other relationships that could benefit from a joint bank account. Joint bank accounts allow two or more people to own the account, assuming equal responsibility. Here’s what you need to know before opening an account.

If you are combining your assets with another person, a financial advisor can help you put together a financial plan.

What Is a Joint Bank Account?

A joint bank account is a type of bank account that has more than one person on the account. Typically, you have the option to open any kind of account as a joint account. This includes checking accounts, certificates of deposit and more.

When you open a joint bank account, each person on the account has access to it. For example, each owner will receive checks and a debit card with a checking account. Usually, transactions made by one owner won’t require the consent of another owner. This means that both (or more) owners share the responsibility of maintaining the account. Successfully owning a joint bank account will include a lot of transparency between owners.

Many joint bank accounts include a “right of survivorship” feature. This states that if one account owner dies, the other owner will receive 100% of the account funds. This comes in handy when you want the money to go to the co-owner. But you’ll have to be wary of this feature if you want your money to go elsewhere after you die. The “right of survivorship” feature will override your will if you have one.

Key Features of a Joint Bank Account

A joint bank account allows for multiple account holders to manage a variety of services. Here are eight features to consider:

Shared access for all account holders. This is the most obvious feature of a joint bank account. Each account holder will have equal access to the account. This means that everyone should have an understanding of how the accounts are to be used, as well as guidelines for communicating big decisions to the other people involved.
Ability for each person to deposit and withdraw money. A joint bank account allows each person to access funds as they see fit. This includes both deposits and withdrawals. This is arguably the most important feature of a joint bank account, and the one that presents the most liability. Make sure you have an appropriate level of trust with someone before opening an account together.
Equal responsibility for any fees or overdrafts. One of the upsides to a joint bank account is that the costs are shared between the parties involved. This is particularly advantageous for couples who can avoid paying twice as many banking fees by consolidating their finances into one account. However, it also requires more communication about what’s coming in and out of the account in order to avoid incurring fees and penalties.
Simplified management of shared expenses. Using a joint bank account provides an unparalleled level of transparency. Each account holder has access to the transaction record and can see exactly where the money is going. This translates to a streamlined approach to budgeting because it’s much easier to track withdrawals and deposits for multiple people when they are combined in one account.
Right of survivorship, depending on account setup. Joint bank accounts can be a valuable tool for estate planning. Establishing beneficiaries during the account set up allows for greater peace of mind when thinking about the long-term plan for the account. Right of survivorship allows the surviving account holder to bypass the probate process; however, the account balance is considered part of the deceased’s estate and is subject to state, local, and federal taxes.
Potential impact on individual credit if issues arise. Entering into a joint bank account with someone does more than share money between different parties. If the account gets mismanaged to the point it becomes a liability, everyone involved in the account is held responsible. This means there could be consequences that affect your ability to access credit in the future even if you didn’t do anything wrong.
Easier access to funds in case of emergency. In times of crisis having access to money can make an already difficult situation a little easier to manage. Joint accounts provide a level of assurance that individual accounts do not. In the event of a medical emergency or natural disaster, having shared access to an account can make a world of difference during a difficult time.
Visibility into each other’s spending and saving habits. Joint bank accounts can be a useful tool for individuals who have a vested interest in one another’s spending and saving habits. Whether it’s a spouse, a child, or a business partner, the ability to track how money is being used, and by whom, can make a big difference when trying to develop a sound financial strategy.

How to Open a Joint Bank Account

Opening a joint bank account is relatively easy. You go through the steps of opening a regular account but choose the option to make it a joint account. Make sure to provide the information for all owners, including Social Security numbers, photo identification, addresses, and more.

Depending on the institution, you may have the option to add someone to an existing account instead of opening a new one. The new owner will still need to provide the necessary information and documents.

Before signing, make sure you and the co-owner know the terms of the account. It can help to make a plan for managing deposits, withdrawals, and responsibilities like overdrafts. Check with your bank about how they handle joint accounts.

It’s also a good idea to keep a separate personal account. This gives you control over some of your own finances while still managing shared expenses through the joint account.

Here are six general steps to help you through the process:

Choose a bank and account type. Decide which bank and what kind of account (checking, savings, etc.) you want to open together.
Select the joint account option. Make sure you choose the joint account when applying.
Provide information for both owners. Submit Social Security numbers, photo IDs, addresses, and other required details.
Consider adding to an existing account. Some banks allow you to add a second person to an existing account instead of opening a new one.
Discuss how you will manage the account. Agree on how deposits, bill payments, and overdrafts will be handled.
Keep a separate personal account. Maintaining an individual account offers flexibility and control over your own money.

When to Open a Joint Bank Account

A mother and daughter depositing a check with a mobile app.

Traditionally, joint bank accounts are opened by married couples. But it’s not only married couples who can open a joint bank account. Civil partners, unmarried couples who live together, roommates, senior citizens and their caregivers and parents and their children can also open joint bank accounts.

A joint bank account is a good way to deal with shared expenses, as with married couples or roommates. Instead of splitting a bill between two bank accounts, the funds can simply come from one joint account. Couples can also more easily budget their expenses with a joint bank account. A joint bank account also provides a way for a pair to keep an eye on each other’s expenses, like savings accounts for kids. This way, the child can gain some banking experience while the parent keeps watch.

Opening a joint bank account is a good idea for a number of situations. If you open a joint checking or savings account, you and your co-owner will share responsibility for saving and spending responsibly. That way, it becomes more of a team effort. Plus, pooling your funds together can give you access to certain benefits that come with a higher account balance. This will depend on the kind of account you open, but includes things like waived fees and higher savings interest rates.

When opening a joint bank account, it’s important to communicate with your partner. Together, decide on which financial institution you want to open an account with and what kind of account you want to open. Again, set specific responsibilities for each owner and action plans. Always make sure you remain communicative about the account.

Benefits of Opening a Joint Bank Account

A joint bank account makes it much easier to manage shared expenses. Instead of each person paying separate bills or moving money between accounts, both people can deposit their income and use the account to cover things like rent, utilities, groceries, and other daily costs. This keeps money organized and makes it simpler to track who has paid for what.

Saving for shared goals also becomes easier with a joint account. Whether you’re working toward a vacation, a mortgage, or building an emergency fund, putting your savings in one place helps you stay on track. For example, a couple saving for a house can both add money to the same account, making it simple to watch their progress.

Joint accounts are also helpful in emergencies. If one person is unavailable or something unexpected happens, the other person can still access the money to pay bills or cover costs without delay. This access provides peace of mind and can make financial management less stressful for both account holders.

Drawbacks of a Joint Bank Account

Along with a joint bank account’s many perks there are some risks you take on, as well. For starters, there is no protection in the event that one owner misuses the account. So if your partner bounces a check associated with the account without your knowledge, you are both held accountable even though you had nothing to do with it.

Also, one owner can withdraw a huge chunk of funds without telling another owner. Because joint bank accounts assume the owners communicate regularly, the bank won’t require approval for this kind of transaction. This is why it’s important to open a joint bank account with someone you trust. You should also still regularly check on the account.

Similarly, one person’s financial troubles can become both owners’ financial concerns. For example, if one owner gets divorced or goes bankrupt, the funds within the account will be seen as that person’s assets. That means that regardless of the other owner, the money is up for grabs. You and your co-owner will have to be honest and upfront about each of your finances to avoid a big financial disaster.

You could potentially see a bigger tax bill due to your joint bank account. If you’re both putting money into the account, that’s fine. But if you deposit money into the account, and your co-owner withdraws more than the $16,000 yearly limit, the IRS sees that withdrawal as a gift.

Lastly, while pooling assets together has its benefits, it can also have its drawbacks. For example, if you open a joint account with a college student, the joint funds will count towards their assets, possibly reducing their eligibility for financial aid. The same goes for an elderly co-owner who may rely on Medicaid long-term care.

Should You Open a Joint Bank Account?

Now you know about the benefits and risks of opening a joint bank account. So should you open one? The answer to this will depend on your finances and those of your possible co-owner(s). Will you take on more risks by opening a joint bank account? Or will it benefit you entirely? Take a look at your debts, income, credit, etc. before you decide. Don’t forget to be honest and open with your potential co-owner(s).

Your personal preference also plays a big role in deciding whether to open a joint bank account or not. Do you value financial privacy and independence? Using a joint bank account means that all your transactions are there for your co-owner to see. It would be hard to keep your joint bank account activity a secret, which can be both a blessing and a curse.

Keep in mind that you can open a joint bank account and still keep your separate individual accounts. This way, you could pay for shared expenses or save toward shared goals like retirement with the joint account and keep some financial autonomy with your own separate accounts.

Bottom Line

A joint bank account is a solid financial option for a number of situations. It brings ease to roommates paying for shared expenses. It offers married couples a way to budget, save and spend together. Of course there are risks that come with joint bank accounts, that you will have to keep an eye out for. That way you and your co-owner(s) don’t get hit with high fees or taxes. Always maintain honest and open communication with a joint bank account to succeed.

Tips for Finding the Right Bank Account

Before combing your assets, it might be worthwhile to first sit down together with a financial advisor to ensure you’re both on the same page. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Choosing the right bank account is a huge financial step and not just for joint bank accounts. Finding the bank or credit union you’re most comfortable with is a good start. That way, you know your banking experience is more likely to be a positive one.
You will also want to compare bank accounts. Comparing some of the best checking accounts and savings accounts will help you see what’s out there. You won’t want to settle for a low interest rate once you see that you can do better!