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What is a Joint Checking Account?
In the banking business, one size does not fit all. That's why financial institutions have developed many different types of checking and savings accounts to meet their customers' needs.
One popular option is the joint checking account. While the concept is simple, there are some important ground rules that, if you observe them carefully, will make a joint checking account work smoothly for all concerned.
What is a joint checking account?
A joint checking account is a bank account shared between two or more individuals. Joint accounts are most likely to be used by spouses, family members, or partners in life or in business.
Everyone named on a joint checking account has complete access to any funds in the account. That's why it's important to establish rules around the use of a joint checking account and to trust the others named on the account. It might be risky, for instance, to establish a joint account with someone who has trouble sticking to an agreed-upon budget.
Some of the general principles to be agreed upon:
What is the joint account to be used for?
For many couples, the joint account is where both parties can deposit money to pay for shared expenses, such as utilities, rent, mortgage, health insurance, and childcare. If the account is held by a parent and minor child, the account may have a debit card attached to it that will let the child spend independently. The parent will need to make sure the kinds of allowed expenses are clearly communicated and understood.
Do we have to be married?
That's not a requirement. A joint account can be held by domestic partners, a parent and a minor child, an adult and their aging parent, or business partners. What's important is the nature of the relationship, which has to be one of trust.
Do we also need separate accounts?
An individual's expenses—clothing, personal care, entertainment or the like—could be paid out of a personal bank account if the joint account holders want to maintain some privacy. It's not unusual for a family to have multiple checking accounts.
How does a joint checking account work?
A personal checking account is for one individual, who controls the inflows and outflows. A joint checking account, by contrast, is owned by two or more individuals, meaning there is complete transparency between the joint account holders about what is being spent and for what.
In many ways, joint accounts are like individual accounts. After opening a joint checking account, each account owner can deposit funds, check the account balance, get a debit card linked to the account, and set up automatic bill payments.
Owners of joint accounts must be "natural persons" under rules set by the Federal Deposit Insurance Corporation. Legal entities, such as corporations or trusts, cannot be joint owners of a checking account.
A joint account can be set up as an "and" or an "or." If it's an "and" account, the joint owners must both sign off on expenses. If it's an "or" account, any account holder can spend money out of the account, independently of the others. Joint accounts, like personal checking accounts, are insured by the FDIC for up to $250,000 per depositor, meaning the insurance can be worth as much as $500,000. Regardless of how much each individual contributes, the FDIC assumes that each account holder owns equal shares.
In the "old" days (pre-2000), when checks were the only way to access checking account funds, having a joint account could be a hassle because there was usually one checkbook. These days, though, thanks to technological advances and mobile banking, a debit card is all it takes to access a joint checking account, transactions appear almost immediately, and the checking account balance can be easily viewed online.
When should we open a joint checking account?
There are a few life situations when a joint checking account makes sense.
- When you want to combine finances with a partner
Married couples and business partners who are on the same financial wavelength and share financial goals may find it helpful to set up a joint checking account - When you want to help elder loved ones manage their finances
If mom or dad is not keeping up with their bills or bank statements, a joint account with an adult child can provide peace of mind by making sure things like long-term care insurance premiums aren't falling through the cracks. The oversight may also help keep an elder loved one from falling victim to scams
- When you want to teach your child about money and budgeting
A joint checking account held with a parent can show a teen how money comes in (from a part-time job or allowance), where it goes, and how to manage their priorities. It also instills confidence. Note, though, that when it comes time to apply for college, any accounts held by the student weigh against financial aid eligibility
Benefits of a joint checking account
Especially in the above situations, a joint checking account offers several benefits. Joint account holders can:
- Pay shared bills, like rent, mortgage and utilities; and in the case of business partners, qualified business expenses
- Buy shared items, like groceries
- Create a joint budget, fostering collaborative decision making
- Build and reach financial goals together
- Deposit checks for one another
- Each has a debit card
- Multiple people can monitor account activity online or through a mobile app to ensure accountability and avoid overdrafts
- Potentially have a higher balance, qualifying for an interest checking account or money market accounts
What do we need to open a joint checking account?
The best way to open a joint account is for the account holders to visit a bank location together because all participants will need to sign the signature card. Good news: no credit check is required.
You'll need:
- Identification for all account owners, like a driver's license, state ID or passport
- Personal information for the account owners, including date of birth, Social Security number and proof of current address
- Funds for the initial deposit. If you have a checking account at the same bank, it's easy to make a transfer
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