What Is a Joint Bank Account and How Does It Work?

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Editor's Note: This story originally appeared on The Penny Hoarder.

Forget making it Facebook-official. Opening a joint bank account is the true way to show you’re committed.

OK, so not really. But for many married couples, long-term domestic partners, families and even roommates, joint bank accounts make budgeting and sharing bills easier to manage.

Here’s how they work, and some important pros and cons to consider.

What Is a Joint Bank Account?

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A joint bank account is much like any other account you open with your bank or credit union. You can use it to save money and earn interest, write checks and swipe a debit card to make payments, and even set it up for direct deposit of paychecks and automatic bill pay.

So what’s different? You aren’t the only account holder. A joint account lets multiple people (typically two, though some banks allow up to four) act as account holders. That means they have equal rights to deposit — and withdraw — funds and will be held just as responsible as you for overdraft fees.

Joint accounts include checking and savings accounts. You might open a joint checking account to manage shared bills while a joint savings account makes sense for shared goals, like a house down payment, vacation or emergency fund.

Advantages of a Joint Bank Account

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The main reason people open a joint bank account is because they are married or domestic partners with shared expenses and shared savings goals. Sharing a bank account might make you a little more disciplined with your own spending and can help you form a team mentality toward saving for specific goals.

But romantic partners aren’t the only ones who open joint bank accounts. Sometimes parents will add children, like college students or young teens just learning the ropes of money management, to their accounts. Those with aging parents might be added to their parents’ accounts to make it easier to take care of medical expenses, other bills or trips to the grocery store. If you trust your roommates enough to open an account just to pay bills like rent and utilities, it’s an easy way to take care of shared household expenses.

A huge pro of joint accounts is the financial power of combined money. Often, certain accounts will pay higher interest rates when you have more money in them. Reaching that total is easier with more than one contributor.

Finally, a typical account is insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. But each depositor in a joint account receives that insurance, so an account with two depositors is insured for up to $500,000.

Disadvantages of Joint Bank Accounts

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Bankers beware: Joint accounts have a lot of downsides, so be sure you trust your co-account owner on a personal level and a financial level before opening.

For starters, if a relationship or friendship ends poorly, the other co-account owner can drain the account before you are able to freeze the funds (or withdraw them yourself). If your relationship is on rocky ground, a joint bank account is not a good idea because a breakup could affect your credit score.

Some partners who do not see eye to eye on spending and saving should consider separate accounts to avoid fighting.

Another major con of joint bank accounts is what can happen if your co-account owner mismanages the funds. They may be solely responsible for the act of overspending, but the bank will hold both of you responsible for the resulting overdraft fees — and you’ll also be out all that spent money.

And if your account is drained by the other person and you miss an important payment for a bill in your name (like rent or utilities) that is auto withdrawn from the account, this will affect your credit score, even if it wasn’t your fault.

Further, any funds in a joint bank account count toward both of your assets. That means, if one of the account holders files for bankruptcy, the money in the joint bank account is fair game for their creditors, even if you actually contributed most of that money.

Just as frustrating, shared funds with your child in college could count against them in terms of financial aid while an account held jointly with someone on Medicaid could disqualify them from receiving benefits.

Finally, joint bank accounts can get messy when one of the owners passes away. Because of “right of survivorship,” all that money goes to the other co-owner, even if you had intended for some of it to be distributed to other family, friends or organizations via your will.

Note: While most joint accounts have “right of survivorship,” you can find some with “tenants in common,” which allows you to get more specific with what should happen to funds if one person passes away.

And even if your intention is to pass on the money to the co-owner after death, the joint account owner will still potentially have to deal with inheritance taxes, depending on the amount in the bank account.

How to Open a Joint Bank Account

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If a joint bank account makes sense for you and your partner, parent, child or roommate, apply online or visit a branch of your chosen bank in person to open the account. The process is typically easy. Just be sure to bring:

  • Proof of identity, like your driver’s license or passport
  • Proof of address, like a utility bill
  • Your initial deposit (this can also be electronically procured from an existing account at another institution, if necessary)

You will need to fill out an application, and voila! You now co-own a joint bank account. You should receive a debit card, a checkbook and information regarding how the account works.

But before signing on the dotted line, ask a few important questions:

  • What happens if the relationship with the joint account holder ends? How do you freeze funds?
  • Can one person take out all the funds at once? Is it possible to limit withdrawals unless both/all parties are present?
  • Who is responsible for paying overdraft fees?

Alternatives to a Joint Bank Account

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A joint account is not the only way to share funds with someone else. Consider one of these joint bank account alternatives if you’re on the fence:

Teen Checking Accounts

Some banks offer special accounts for teens. These often have no monthly maintenance fees and give parents a lot of oversight. Depending on the financial institution, you may be able to monitor the teen checking account online, place restrictions on ATM usage and debit card spending and connect it to your own online banking account for easy funding.

Just be sure to read the fine print about what happens when your teen ages out of the account.

Linked Accounts

Couples who want to share money easily but still keep finances their own may benefit from linking their accounts. As long as you bank at the same institution, you should be able to connect your accounts the same way you link your own checking and savings. This makes sending money back and forth easy and safe.

Money Transfer Apps

If you and your partner, friend or child do your banking with institutions that offer Zelle (even if they’re two different banks or credit unions), you can securely request and send money back and forth. Even if you don’t have Zelle through your bank, you can consider one of several popular money transfer apps to send and receive money. Just be cautious of fees.

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