Maybe you just got married and are thinking about opening one with your spouse. Or maybe you’re considering one to help an elderly parent with their finances. Or perhaps your child is heading off to college and you’re opening one to help them pay their bills.
A joint bank account is a financial tool with many different uses. But there are things to consider before adding another person to your bank account or opening a new joint account. Let’s take a look at some of the common joint account scenarios, and some things to keep in mind.
A joint account for married couples
Newlyweds often consider establishing a joint account so they can pool their money together for various purposes, such as saving for a home or a vacation. It can also be used to share recurring household expenses, including utility and grocery bills.
By having a joint account, you and your spouse can easily track one another’s spending habits and frequency of deposits. This transparency makes it more difficult to buy items in secret or go on a spending spree without the other person knowing about it. In other words, it tends to keep couples open and honest about managing money in the account, and can lead to some great communication regarding finances.
A joint account for elderly parents
Joint accounts are sometimes used by people when their elderly parents need assistance with managing their finances. This is particularly true when an elderly parent is suffering the effects of dementia or Alzheimer’s disease.
It’s not unusual for elderly parents to be reluctant to allow their son or daughter to assist with managing their financial matters. They may feel insulted that, after so many years of handling their finances on their own, they need to relinquish some control. Or they may fear that funds could be removed from their account without their permission. If you’re considering a joint account in order to help an elderly parent, you’ll need to communicate as a family to ensure that all parties involved are comfortable with the situation.
A joint account for college students
Students heading off to college are faced with a lot of new challenges, and a lot of them are faced with having to manage their finances for the first time in their lives. Establishing a joint account with your college student can help relieve them of this stress. You can educate them on how to handle their money while also keeping an eye on their spending. A joint account can also be helpful if you’ll be helping your son or daughter with their living expenses, or college-related expenses such as textbooks or computers.
The key, again, is communication. You and your child will need to be on the same page as to how the account will be managed, and what types of expenses will be covered through the account. There should also be clear consequences if the account is overdrawn or if it’s tapped for frivolous expenses.
Opening a joint account
The process for establishing a joint account is similar to having an individual account. If you already have an account and want to add another person to it, it’s just a matter of providing your financial institution with some information and identification so they can approve the addition. Or, you can both apply for a new joint account together.
Either way, once a joint account is created, you’ll have to decide if it’s going to be jointly managed and monitored, or if those duties will be split, or assigned to one person. You’ll also have other decisions to make, such as whether both people will receive bank alerts and if there’s a need to create individual online banking profiles.
Keep in mind that with a joint account, either party can withdraw funds without the other’s permission. And, both parties can talk to the bank about the account without having consent from the other person.
Having a joint account can open doors to benefits and features that aren’t available with an individual account. By pooling funds, you could meet the minimum balance requirements that qualify you for such things as higher interest rates on savings products and waived ATM and maintenance fees.
Financial experts say it’s important to maintain strong communications when having a joint account so that each person is fully aware of what’s going on with the money in it. This is especially true if an issue arises, such as overspending by one party, or one party failing to pay bills on time.
No matter what your reason for considering a joint bank account, it’s extremely important that you trust the other person. While joint accounts can be helpful tools for managing money as a team, they can also open up the doors for serious money issues such as drained bank accounts, overdraft charges, and credit damage, if the other person is irresponsible or dishonest.