By Carla Hindman
PRIDE Money Columnist
Did you recently get married, move in with a new roommate, see a child off to university or start managing a relative’s finances? The change in relationship dynamics could prompt you to consider tying part of your financial lives together by opening a joint bank account.
You might enjoy the conveniences a joint account offers, or you could see it as a symbolic step in your relationship. But before you open a bank account with someone else, consider the potential benefits and drawbacks of the arrangement.
First, here’s a quick introduction to joint accounts. Individual and joint accounts are similar in many ways. You can open a joint account at an online-only bank or local bank branch. However, with a joint account both co-owners can deposit or withdraw money as if it were an individual account. The account holders can also write cheques, make online payments or transfers and use the account’s debit cards (if it offers them) to make purchases or withdrawals.
Let’s start with a few situations where you might want to use a joint bank account, followed by examples of why the arrangement might not make sense for you.
You might want a joint account if you share financial responsibilities with someone else. Sharing a joint account could be a good option if you’re married or living with a significant other. Some couples keep their individual accounts and also create a joint account where they deposit a portion of their paycheques and use the money to pay for household expenses or a shared savings goal.
With two people contributing to and watching a shared account, it could be easier to meet minimum balance requirements and identify savings opportunities. Some accounts also offer higher interest rates the more money you have in the account.
In certain situations, a shared account could also help if you are responsible for caring for a family member. Assuming you have the legal right to do so, a joint bank account could help you care for relatives, whether they live nearby or in another province. With co-owner access, it’ll be easier to deposit or transfer funds online and at a bank branch, pay the person’s bills from the account and keep an eye on the account’s activity and balance.
But beware, joint accounts entitle account holders joint ownership of the money. No matter who makes the deposit, once money is in a joint account, each member owns it and can legally spend it however he or she wants. In other words, you might not have any recourse if your new roommate raids a joint account and spends the rent money on a weekend getaway.
A joint account holder’s debt could also spell trouble for everyone on the account. Because every joint account holder has equal rights to the money, creditors can go after the money in a joint account if they sue one of the account holders. Meaning all the money is at risk if one person gets sued, falls behind on bills or doesn’t pay taxes.
If you’re considering using a joint account to help manage an older relative’s finances, a convenience account or getting power of attorney may be safer alternatives.
Communication and trust are vital to managing a joint account. Lack of communication between joint account holders could lead to overdrawn accounts or low balances, and the corresponding fees. It can also lead to disputes if the owners have different ideas of how the money should be spent.
Some co-owners enter into an agreement before opening an account together which may include requiring the other’s approval before spending over a certain amount from the account. Using a mobile app to check a joint account’s balance before making a purchase could also help you avoid mistakes.
Bottom line: While joint bank accounts let two or more people share access to an account, the convenience of the arrangement can sometimes be outweighed by the risks it poses to the co-owners.
Even if you trust the other co-owner, having a clear understanding of the intention behind the account and how the money will be used are important to avoiding arguments and mismanagement of your joint funds.
Carla Hindman, Director of Financial Education at Visa Canada, directs the company’s Practical Money Skills program.