What is a Joint Account and How Does a Joint Bank Account Work?

While finances are often personal, there are times when you may need or want to manage money with others. A joint account makes this easier, as you can share control — and responsibility.

What Is a Joint Bank Account?

A joint account is an account at least two people own, and all the owners have full and equal access to the account. You could open different types of joint accounts, including a joint brokerage account, money market account, certificate of deposit (CD), credit card or loan.

How Do Joint Bank Accounts Work?

Joint bank accounts are a popular type of joint account that many couples, family members and business partners use.

Joint bank accounts can be created via a checking or savings account.

In many ways, joint checking and savings accounts work like individual bank accounts. After opening a joint checking account, each account owner can deposit funds, check account balances, get a debit card linked to the account and set up automatic bill payments.

Each joint bank account holder has full access to the money—it's not divided based on their contributions. Even if you're the one who deposits money into the account, other account owners can spend or transfer the money without your permission. Although, one change you may notice is that when someone makes out a check to multiple account holders, every account holder has to endorse the check before you can deposit it.

When Should You Consider a Joint Bank Account?

You may want to open a joint bank account with different people depending on your specific financial goals, such as:

• To combine finances with a significant other. You may want a joint account with your partner or spouse for shared expenses and savings goals.
• To help a parent. Adult children could open a joint account with a parent to help them manage their finances.
• To teach and care for children. Parents may want to open a joint account with a child to teach them about money management or to deposit funds that the child can use quickly.
• To run a business. Business partners may want to use a joint account to give both parties equal access to and control over the company's money.

There's no relationship requirement to open a joint bank account—any two people could open a one together if they both agree and meet the bank's requirements.

There are also options for allowing someone to spend money in an account without sharing ownership. For example, an adult child helping an aging parent with bills could be given financial power of attorney. They can then look over the account and use the funds to pay the parent's bills, but without the potential drawbacks that can come with joint accounts.

Pros of Joint Bank Accounts

There are many helpful and important reasons to open joint accounts, including:

• Convenience: Pooling your money in a way that allows both of you to have ready access to it makes paying bills more convenient. Plus, you can stay on top of your financial responsibilities as a team.
• Transparency: A shared bank account also lays it all out there. Both parties can see exactly how much money is in the account and where it's going, which could be important information in aligning your financial goals.
• Accountability: Knowing you have joint accountability may keep both of you from making purchases that are outside your budget or that derail your goals. It could also encourage you to discuss financial goals and spending, which may help you avoid arguments about finances later.
• Benefits for a large balance: Some bank accounts may have minimum account balance requirements or additional benefits if you have a large balance. You may be able to avoid fees or more easily qualify for benefits if you combine your finances.
• Additional FDIC insurance: The Federal Deposit Insurance Corporation(FDIC) insures bank accounts for up to $250,000 per depositor and per FDIC-insured bank and ownership category (such as single or joint accounts). If your financial institution is an FDIC member and you jointly own a bank account with one other person, the FDIC insures up to $250,000 for each depositor—up to $500,000 overall.

Cons of Joint Bank Accounts

You'll also want to understand the potential downsides before opening a joint bank account, including:

• Lack of control: The other person can spend or transfer the money you put into the account. Even if there aren't any issues at first, this could become a problem if a relationship deteriorates.
• Potential fees: Miscommunication could lead to overspending, which may result in an overdraft or account maintenance fees.
• Creditors may have claims to the money: Creditors, collection agencies and government agencies (such as the IRS) may be able to garnish money from a bank account. If you have a joint account, the money could be garnished even if you made most of the deposits and the other owner owes the debt. However, the laws and limitations can depend on where you live, whether you have a joint account with your spouse, and how someone spends the borrowed money.¹
• The funds might impact benefits: The money in a joint account could impact account holders' Medicaid and higher-education financial aid eligibility and benefits.²
• Transparency: While transparency can be positive, some people may prefer to keep some (or all) of their finances private, even if they're in a committed relationship. If that's the case, a joint account might not make sense unless you also use separate accounts for some of your money.

Frequently Asked Questions About Joint Bank Accounts

 

1. Do Joint Bank Accounts Impact Credit Scores?

Bank accounts, including joint bank accounts, generally don't impact credit scores. Most credit scores only look at the information that's on your credit report from one of the major consumer credit bureaus—Equifax, Experian or TransUnion. Your bank accounts aren't reported to the credit bureaus, and they don't impact your credit reports or scores.³

One exception could be if you owe money on a joint account (e.g., from an overdraft), and the bank sends or sells the debt to a collection agency. If that happens, the collection agency may report the debt to the credit bureaus, and the collection account could hurt every joint bank account holder's credit.

2. Who Pays Taxes on Interest From a Joint Bank Account?

If you have a joint account, you both may have to pay taxes on a portion of the interest income. However, the bank will only send one 1099-INT tax form. You can ask the bank who will receive the form because that person has to list the income on their tax return.

If you're married and file jointly, it won't matter whose name is on the form because you combine your income. But when you have a joint account with someone other than your spouse, or you file separate returns, the IRS divides the taxable income based on where you live.⁴ If you receive the Form 1099-INT with the full amount, you may need to figure out the proper split. You can then fill out and send a Form 1099-INT with the other person's portion to the joint owner and the IRS.

3. How Do You Open a Joint Bank Account?

The process for opening a joint account will depend on the type of account and financial institution. If you're opening a checking or savings account at a new bank, you may be able to create a joint account during the sign-up process. Or, one person may need to open an account as the primary account holder before adding someone else as a joint account holder.

With Synchrony Bank, you can open a joint high yield savings account online and add up to three joint owners during the sign-up process.

You'll need every person's personal information, such as their names, Social Security numbers, and addresses (if they're different). You may also need to choose and respond to a security question and upload copies of government-issued IDs. If you have the information on hand, you can complete the process within a few minutes.

4. How Do You Close a Joint Bank Account?

Some joint accounts might let any of the owners withdraw the balance and close the account. But often, you can't close a joint bank account unless all the owners agree. Additionally, you generally can't remove someone from a joint account without their consent.

To verify everyone is in agreement, you might need to ask your co-owners to visit a bank branch with you. Or they may need to submit a removal or closure request online.

The Bottom Line

Opening a joint account is an easy way to share your finances because every joint account holder has equal and full access to the funds. While there are potential drawbacks to consider, a joint account can be a helpful and meaningful way to manage money with a spouse, business partner, child, or aging parent.

 

Louis DeNicola is a finance writer based in Oakland, California. He specializes in consumer credit, personal finance, and small business finance, and loves helping people find ways to save money. He also writes for Experian, FICO, Forbes, Insider, and various FinTechs.

 

 

Sources:

¹ https://www.nolo.com/legal-encyclopedia/bank-levies-joint-accounts-spouse.html

² https://www.aarp.org/caregiving/financial-legal/info-2020/managing-someone-elses-money.html

3 https://www.experian.com/blogs/ask-experian/are-bank-accounts-affect-credit-report/

4 https://www.irs.gov/publications/p550#en_US_2021_publink10009846