Joint checking accounts can be ideal for couples, parents and their teenagers, and adults looking after their aging moms and dads. They function just like personal checking accounts, but belong to both people on the account. Both can contribute to and use the funds it holds.
This arrangement requires a great deal of trust between the participants, so opening one needs careful consideration.
Joint checking accounts have their pros and cons. If you think one is right for you, setting it up is straightforward.
- Parents can monitor a child’s spending habits and can quickly transfer funds to a joint account when necessary.
- Couples can use cash in a joint account to cover shared expenses such as rent, utilities and food.
- Adult children can help manage parental finances should their elders become infirm.
- If a parent dies, an adult child has immediate access to funds in the account, avoiding a potentially lengthy legal process.
- A child may spend too freely and become overly reliant on Mom or Dad refilling the account.
- Spending from the account can’t be controlled by either partner, so one could drain it.
- A partner could overdraw the account, generating fees both may have to cover.
- If one holder lets debts go unpaid, creditors can pursue money in the account for settlements.
- Both holders can see transactions in the account, which can present privacy issues.
Opening an account
Setting up a joint checking account is much like opening a personal one. You must provide the financial institution with required personal information for both participants, such as addresses, dates of birth and Social Security numbers.
The most challenging step may be deciding whether to open a shared account in the first place. Before you fill out any forms, have a frank conversation with your prospective account co-owner. This talk can help you avoid disagreements and confusion later.
“It’s important to lay out expectations with the other account holder,” says Carrie Houchins Witt, a financial advisor in Coralville, Iowa. “If your teenager hasn’t quite grasped the concepts of saving and spending and personal responsibility, be careful about putting money in the account and expecting them to budget properly without your guidance.”
If you’re opening a joint account with a significant other, don’t close your personal account, at least not right away. You may want to have funds of your own for personal expenses, such as clothes and meals out with friends.
The bottom line
In the right situation, opening a joint checking account can make a lot of sense. But doing so requires quite a bit of maintenance. Whether you’re planning on sharing one with a child, significant other, or aging parent, be sure to keep channels of communication open and deal with any issues as they arise.
That may mean having difficult discussions about spending and saving habits, but initiating these types of conversations can help prevent even bigger headaches down the road.
This post was updated. It was originally published on July 24, 2012.
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