Managing Daily Finances Together — Is a Joint Account Right for You?
Big life changes can mean a change from managing money on your own to managing money together with a family member. Many people consider getting joint checking or savings accounts with a spouse or partner, a child ready to take on new responsibilities, or even a family member in need of a little help.
How do individual and joint bank accounts differ? An individual bank account belongs to and can be accessed by only one person. A joint bank account belongs to more than one person, and each joint account owner can deposit and withdraw funds and see account transactions.
Many couples use joint accounts to manage shared household expenses like utilities, rent, and groceries. Parents often open a joint account with their teen as an easy way to provide an allowance and help their teen learn about managing money while keeping an eye on their teen’s spending. Adults may use a joint account to help an older parent manage finances.
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Joint accounts have advantages, namely the convenience of the joint account owners having the same access to shared funds. If their financial institution provides email alerts for account activity — such as electronic deposits, withdrawals above a certain amount, or an account balance that is too low — joint account owners can elect to receive the same alerts at the same time. Combining funds into one account can help couples keep a higher account balance, allowing them to upgrade to an account without maintenance fees or with higher interest rates. A joint account also can provide security — in the event of the death of one of the joint account owners, the other owner still has immediate access to the account’s funds.
But there are also down sides to a joint account. Namely, any one owner of the joint account can spend all of the money within the account. All of the account owners are responsible for any fees that arise from account overdrafts. Also, a creditor can seek to collect on unpaid debts amassed by one account owner from joint account funds.
Some couples that manage finances together take a hybrid approach. They have a joint account for shared expenses and keep individual accounts for their remaining personal funds. If the accounts are held at the same financial institution, the accounts can be linked, making transfers between the accounts easy while still maintaining privacy on the individual accounts.
How do you decide which approach is right is for you and your family? You can choose from an individual account, a joint account, or a combination of both. Consider these three factors:
- Communication — Which approach will help you and your spouse or partner, your teen, or other family member have frank conversations about budgets, spending, and saving? Which approach helps everyone have the same, clear expectations about how much money is coming into the account, either from income directly deposited or from transfers from other accounts?
- Convenience — Which approach makes it easiest for you and your family members to have access to needed funds?
- Preference — Which approach respects everyone’s comfort levels when it comes to both financial independence and financial transparency?
There is no one right approach. Talking through these three factors ahead of time will help you and your family choose the path that works best for you.
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