Joint Account: Their Advantages and Disadvantages

Joint bank accounts are normally opened by married couples, close relatives, business partners, domestic partners, or several individuals who may feel the to share the responsibilities of money management.  In this kind of a financial product, all parties in the account exercise authority and power over the transactions in the account as agreed upon during account opening.

Having a joint account requires the presence of trust between or among the account holders.  Joint bank accounts have their advantages and disadvantages. The following is a list of the pros and cons of having joint accounts:

Advantages

• In a joint account, it’s easier to access the funds when the spouse passes away. If a spouse has a personal account, the account is frozen and you may not access the money immediately.
• A joint account allows newlyweds to consolidate their finances. A joint account for a newly married couple can let each spouse understand his/her partner’s spending habits. Both account holders can pinpoint any irresponsible, careless spending.
• This account can be managed easily. All paychecks are placed in one account where the bills payments, mortgage payments, and savings can all be taken out.  With a joint account, financial management is easy, as money flows out an in from a single account.
• A joint account can promote a cohesive and unified relationship. As there’s trust between partners, the mindset of ‘my money’ becomes ‘our money.’
• You spend less time on monthly expense tracking. A joint account also encourages the sharing of income. If a spouse’s income is lesser than the other, the spouse with the lower income may benefit.

Disadvantages

• A joint account can be messy in the event of a breakup or divorce. The money, while placed in one account, can be hard to divide during a separation.
• There is loss of privacy, as there are a number of people who can be ill at ease when it comes to sharing details about spending habits and income.
• Sharing a bank account may breed conflict. Whether it’s the roommate, spouse, or business partner, disagreements can arise and having a shared account may create future issues. As all account holders can equally access the account, they can withdraw, deposit, change details, or transfer funds any time without the consent or knowledge of the partner.
• If an account holder has a poor credit history, it can negatively impact the partner as well.

Be Careful

While having a joint account is generally a good idea, be careful of what may happen if a partner withdraws money from the account without informing the other. In the case of married couples, if a spouse is unable to control expenses and manage finances, a joint account may not be viable.

Even if only one partner has a financial problem, this puts the other partner in the same position. If a spouse has a bad credit rating, this can adversely affect the other spouse’s portfolio.

Before opening a joint account, the involved parties should discuss first in order for the account to be mutually beneficial. Focus on discussing your saving and spending habits as well as your credit history.

You also have to agree about signatures on a joint checking account, if only one should be the signatory or both. The answer rests on the couple, since – over time – trust has to be established.