What is a joint bank account?
A joint bank account is any account with more than one holder who can access the funds. It could be a transaction, savings or term deposit account. Multiple account holders can be a useful way to pool resources together between people working towards a common goal, or sharing the same responsibilities. All parties have access to the funds in the account, but are also responsible for any liabilities associated with the account. For example, if the account is linked to a credit card, all account holders are responsible for paying off any credit card debt. There are two types of joint bank account. 'Both to sign' accounts need all parties to okay any use of the funds, while 'Either to sign' means that everyone has unlimited access to the money in the account. Many banks in Australia allow multiple account holders for savings and transaction accounts.
Who would use a joint bank account?
The most common use of a joint bank account is between spouses, who might share household expenses or mortgage repayments. Combining bank accounts can make it easier to see the financial position of the household rather than each individual. This is not the only way joint bank accounts are used though. In any situation where several people have the same financial responsibility or savings target, a joint bank account could be useful. For example, if you and some friends are starting a business, but haven't reached the stage where you need a business account, a joint bank account could be a useful way to manage the initial set up and operating expenses. Alternatively, you might share the cost for caring for an older relative with other members of your family, in which case you might open a shared account that the associated expenses will be debited from. Trusted housemates might also make use of a joint bank account to take care of shared expenses.
What are the pros of a joint bank account?
Homemaking
Joint bank accounts have been a popular option historically as they are ideal when one member of a couple works and the other manages the household. A joint everyday transaction account is an easy way for the homemaker to access their shared savings. Household bills could be direct debited from this account, while the card linked to the transaction account might be used for groceries and other everyday spending.
Saving targets
If you are have a big saving target with your partner, a house or a holiday for example, combining both of your savings into a shared account can be a good way to accurately monitor your progress. If you have a shared mortgage for example, you might make your linked offset account a joint bank account, so you can both make contributions. A joint account can also be a good way to keep each other accountable, as you and your partner can see each other's spending. It can also be more beneficial with interest payments with one big pool of savings.
Save on fees
There can be a variety of costs associated with maintaining a saving or transaction account. If you and your partner have separate accounts, you might both be paying annual account fees, for example. By combining accounts, you could then only be charged one set of fees, saving you both half of the amount.
What are the cons?
Both liable for debts
Sharing a bank account with other people means that not only does everyone have access to the funds, everyone is also responsible for any debts associated with the account. If your partner wracks up debts, you are also liable for them.
Breaking up
The main downside to a joint bank account is what happens if you and the partner you hold the account with break up. You'll presumably want to close the account and separate your finances, but it could be difficult to work out who is entitled to what, especially in a breadwinner/homemaker relationship.
Security
Hopefully you have set up a joint bank account with someone you are confident won't rob you, so security isn't a major concern. It's important to remember though that with an either to sign account, any party can withdraw or use an unlimited amount of the joint funds at any time. In theory, the other party could take every penny in the account legally, so it's crucial to only ever open up joint bank accounts with people you completely trust.
Can I just get a card for my partner on my existing account?
If you would like to maintain your own bank account, but would also like your partner to be able to make transactions using the funds in it, you could apply for a supplementary card. This will allow your partner to make transactions and authorise direct debits using their own card. In this case though, your partner will not be liable for any debts associated with the account. There might also be fees for a secondary cardholder, especially in the case of a credit card.
How to choose the best joint bank account
Generally, transaction and savings accounts offered by banks will be the same for single or multiple account holders. When comparing accounts, you'll need to consider the same things you would when choosing a transaction or savings account for yourself. However, there are still some things specific to joint bank accounts to watch out for.
Multiple linked cards
If you are opening a joint transaction account, presumably one of your priorities is for every account holder to easily be able to use the funds. Having a linked debit or credit card each is one of the easiest ways to achieve this, so look out for providers that will allow all account holders to have their own card.
Interest rates on larger sums
After combining your savings into a joint savings account, you could earn interest on a significantly larger sum. It's therefore even more important to find an account with a high interest rate, as the more money you have deposited in a savings account, the more interest income you can earn from a higher rate. For example, if you have $10,000 in a one year term deposit account with a 2% p.a interest rate, your annual interest income would be $200. Switching to a savings account with a 2.5% p.a interest rate would mean an extra $50. On the other hand, if you combined yours and your partner's savings in the same account, your balance might be $30,000, a $600 annual interest income with a 2% return. Now, moving to the 2.5% account would earn the pair of you an extra $150. You'll also want to make sure if you and your partner are saving for a big item - such as a house deposit - your bank pays interest on a large balance. For example, many banks' top interest rates might only apply to balances of $50,000 to $100,000.
Spending insights
Ideally you'll also want a bank account with an app that delivers spending insights, such as how much money you spent on groceries or utilities that month. This will enable you to tackle cost burdens and budgeting together. Still thinking about a joint account? Compare your saving account options today. Source: Infochoice.com.au
