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FAQ: Should We Open a Personal Joint Checking Account?

by on July 24, 2012

What is a joint checking account and how does it work?

Joint checking accounts are very similar to standard accounts with one exception: more than one individual has access to the funds. Unless special circumstances apply, each owner’s share in the account is assumed to be equal. In addition, regardless of the amount that each person actually contributes to the balance, all retain an equal right to access any of the funds. Account owners can each withdraw from or add to the balance through a variety of methods (debit cards, checks, electronic transfers, or branch transactions).

The Federal Deposit Insurance Corporation (FDIC), government insurer of consumer deposit accounts, considers joint accounts to be a separate category from single-owner accounts. This means that although the insured limit per depositor per institution for standard accounts is $250,000, a customer’s share of joint account balances counts towards a separate limit (an additional $250,000). The intricacies of these categories and limitations are not too difficult to understand. However, as most people are not likely approaching $250,000+ in non-retirement accounts, we will leave the more thorough explanation to the FDIC’s video on the topic.

Why would anyone get a joint checking account?

Marriage is one of the more common reasons to partially combine finances. Even within the bonds of marriage, however, couples should have a conversation before taking the step to set up joint bank accounts with a spouse.

There is no rule restricting joint accounts to family members only, but due to the risks involved in sharing some or all of your money with another person, many people caution against sharing a bank account with an unrelated individual.

Consider some of the benefits and risks involved in each situation:

Account Owners Advantages Disadvantages

Spouses/Partners

  • Pay communal expenses (bills, vacation, children, etc.)
  • Ensure access in case of one person’s death or disability
  • Facilitate open communication about financial goals and activities
  • Bickering over personal purchases
  • Lack of privacy
  • Difficulties determining how much each person should contribute
  • In the case of a divorce or break-up, the funds are still accessible to both parties

Parents/Children

  • Easily transfer funds as an allowance or in case of an emergency
  • Monitor the spending activities of teens and young adults
  • Provide a safe and easy introduction to the formal banking system
  • Children (or adults for that matter) can be irresponsible with money, potentially risking overdraft
  • Kids may not be comfortable being “spied” upon by their parents

Roommates

  • Pay communal expenses (bills, rent, groceries, furniture, etc.)
  • Minimize reimbursements or taking turns
  • Both people must contribute equally for the system to make sense
  • Roommates come and go, whereas familial bonds are often more stable

NerdWallet’s recommendations

Joint accounts, in particular between non-family members, can be a polarizing idea. People with positive or very negative experiences with joint accounts will of course have strong opinions on the topic. So here’s our common sense summary:

Do NOT open a joint bank account with anyone that you do not completely trust.

As all joint account owners are equally responsible for the account balance, an overdrawn account that goes unpaid can get all parties reported to ChexSystems. Afterwards, your ability to open a new checking account, even at a different bank, will by compromised.

In the case of a roommate or other non-family member, our opinion is that the risks and hassle of opening a joint checking account outweigh the slight annoyance of repaying each other or splitting the bills on occasion. If you are considering this option, however, check out these tips for making a joint account work as safely as possible.

We think joint accounts between parents and children are a great way to help kids get their first bank account and learn how to manage their personal finances. In many cases, this is required for youth under age 18. For college students, the option of receiving an easy transfer to your account from your parents can also be a huge plus. For teens, NerdWallet especially recommends Capital One 360′s MONEY account. There are no fees, it includes a debit card pays interest on balances, and allows easy access from a mobile app. Parents have all the same access that their children do, but won’t receive a debit card.

Finally, for spouses and significant others, we think a three-pool system is a great option for couples who want to partially combine finances, but are wary about going all-in.  Each person can have an individual account, and contribute their “fair” share (exactly how much is up to the couple to decide) to the joint account for applicable expenses.

Other expert opinions

  • Dr. Julie Gurner, a personal consultant and doctor of clinical psychology, says this of married couples struggling with personal finances: 

“At times, the structure of their monetary accounts is in part to blame because they set up joint checking accounts before reviewing basic issues of fiscal philosophy. In my opinion, setting up a joint account before reviewing spending habits, what you consider ‘necessary’ purchases, and reviewing your typical monthly budgets is a problem waiting to happen.” 

  • Mitchell D. Weiss, adjunct professor of finance and member of the Board for the University of Hartford’s Barney School of Business, makes the following suggestions:

“The parties can maintain separate accounts and each pay for what they’ve agreed to pay for (and save what they’ve each agreed to save), or they can open a joint account. If so, I like the idea of one person paying the bills and the other being responsible for the savings, so long as both parties understand that whatever savings are being created during their time together belongs to both of them.

  • Randy Jarvis, President of Union National Bank & Trust Co. of Sparta, WI offers his perspective based on experience working with customers considering a joint account:

“The advantages are of course greater accessibility to each other’s account balance and information…The downside is that you are sharing equal liability with a someone else.  If your significant other is poor at managing their finances you will be equally responsible for paying overdraft charges.  If the account has an overdraft line you may find that now you have a loan to repay or it may affect your credit score.”

“Parents and children are good candidates for joint accounts…Getting your high-school kids started with good financial habits is essential, and opening a joint account with them is a good way to monitor their habits and teach them good behaviors.”

“I work with a few same-sex couples and while many things in their life function like a normal marriage, there are a lot of legal issues when it comes to their assets. Having a joint checking account is a good way to handle their shared expenses, but also to help ensure those assets are available to the other spouse if one were to pass away suddenly.”

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  • http://www.spwca.co.uk/ Jack – CA London

    Interesting read from a credible source. Yes, joint checking account certainly has pros and cons in all relationships.

  • Gabriel Thompson

    After reading a lot around the internet, I’m thinking at least for my situation, I’m not going to go down the joint account road. My wife and I already have an agreement where I pay all the rent and bills (in this case, I make much more than she does) and she pays me an agreed amount for her share each month which accomplishes all the advantages of a marital joint account listed above. As for travel and other shared purchases, she has the travel rewards credit card and I pay her an agreed % split (i.e. 60/40, somewhat proportional to our incomes) which helps her build up her credit. I have also setup my individual account so that she has access in case of death or emergency. The only downside is that we don’t get to see what each other are spending our daily-use money on……..and I’d suggest that if that’s the main reason you are going for a joint account (ps – the women know this), then there are other trust issues. To semi-resolve this, guys (or girls) should just ensure their partner is setting up some kind of automatic savings transaction for their future (retirement, education, etc.) and stop caring about how they spend the rest of their money. Just my two cents.