How Joint Accounts Could Affect Your Finances
First comes love; then comes marriage; then comes a joint bank account. The thought of merging your life with your partner’s might be exciting. But chances are you were fantasizing about buying a home together or taking romantic vacations, not spending time at the bank.
Not all couples use joint bank accounts, but if that’s something you and your spouse are considering, this is what you need to know.
What you need to know about opening a joint account:
- A joint account works the same as any account except two people have access.
- A joint account could help save you money on fees and the hassle of managing multiple accounts.
- If your partner is irresponsible with money, it could affect your finances and even your credit score.
What is a joint account?
When married couples begin to combine their lives, they may consider combining their finances, too. A joint account is basically what it sounds like, an account that is cosigned by two individuals. Married couples often have joint accounts, but you don’t have to be married to share one with someone. Both signers on the account share equal access and responsibility.
A joint bank account works the same as an individual account except two or more people have account ownership. Any owner on the account will be able to withdraw cash, write checks and make online payments, all using the same account.
Pros and cons of joint accounts
Like most financial decisions you’ll make, there are pros and cons to opening up a joint account. Before taking any action, couples should consider how having a joint account could affect their finances and their marriage.
- Cash flow organization. Double the finances means double the need to organize your cash flow. When you have a joint bank account, both partners will have clear access to see what has been spent, whether bills have been paid and what income is coming in. There is also no need to coordinate who is paying for what from separate personal accounts.
- Lower bank fees. If you or your partner have checking accounts that come with fees, then having one joint bank account could save you money — especially if a minimum balance is needed to avoid a monthly fee. By maintaining one account, you can combine finances and work toward meeting account minimums together.
- Access to more perks. As combining finances in one account helps build a bigger balance, you may have a better chance of earning perks. You may meet a minimum balance requirement that gives you access to features like waived maintenance fees or higher interest.
- Transparency. Honesty is the best policy, and a joint bank account forces financial honesty. By knowing what both of you are spending, you’re both held accountable for purchases as well as any progress made toward financial goals.
- Overdrafts. Joint accounts mean joint responsibility. If one cosigner on the account overdraws, then you’ll be equally responsible for any overdraft fees or additional interest. Having a joint account does not mean you share a credit score, but if your account is frequently overdrawn, the bank may report your activity to a credit bureau. These reports could have a negative effect on your credit score.
- Divorce. If you find yourself separated or divorced down the road, you’ll have less control over your finances. A partner might deny you access to your money, which would limit your ability to make sure bills are paid on time. This is a worst-case scenario but is still a possibility worth being aware of.
- Creditors and debt collectors. You know what they say: “for richer or poorer.” If your partner owes a creditor or debt collector money, then that money may be seized from your joint account. Again, because you both have equal responsibility for the account, both of your credit scores could suffer from having assets seized.
- Inherited debt. If a relative passes away, you usually aren’t responsible for their debt. However, if you cosigned an account or loan with someone and they pass away, their debt could become your problem. Even if you didn’t procure the debt yourself, you may be required to pay it off.
The bottom line
Every marriage is different, and so is every couple’s financial needs. Some may find the ability to track each other’s spending helpful, while others may feel a loss of independence. Or if your partner is unstable financially, you may not want the accountability that comes with having a joint account. For better or worse, you have to make the decisions that are right for you and your spouse.