As you go through life, your financial needs change. One thing you’re likely to consider at some point in your financial journey is a joint bank account.
You may ponder one after getting married. Or you might think about one when your child is getting ready to head off to college. And it’s not uncommon to contemplate one if you have an elderly parent who can no longer manage his or her finances alone.
No matter what the situation is, a joint account has its pros and cons. Here’s a look at some scenarios:
- An elderly parent may not be thrilled with the idea, but a joint account may be unavoidable in order to keep their finances in order. It’s only natural that they may feel insulted by having someone help them after they’ve managed on their own for so many years. Or they may fear that their money will be in jeopardy if someone else has access to it. But if they reach the point where they can’t balance a checkbook or even write checks on their own, there really isn’t any other option for you but to open a joint account with them or be added to their existing one.
- They may be ready for college, but that doesn’t mean your child is ready to manage their own finances without any assistance. Unless you’ve exposed them to financial literacy early on (such as having them open and keep track of a savings or checking account while in high school) your college freshman could struggle to keep their finances in good shape. Although they probably won’t like having someone monitoring their account activity on a regular basis, they probably won’t complain when you transfer over some spending money or some funds for them to pay for their textbooks. And you can help ease potential friction by setting financial boundaries with your child ahead of time, such as an agreement of what constitutes an acceptable or unacceptable expense. There also should be clear consequences if the account is overdrawn or used for frivolous expenses.
- A joint account typically comes up in conversation among newlyweds. And there are plenty of reasons it should. It’s the perfect financial vehicle for saving for a home or a vacation. It also comes in handy when covering recurring household expenses, such as utility and grocery bills. A joint account can make it easier to manage finances as a couple, and it can make each of you more accountable when it comes to making purchases. There’s less chance of either spouse making secret purchases or going on an unplanned spending spree when the account is jointly maintained.
Joint accounts can be great tools for co-managing money, or helping someone else with their finances. And, one of the perks of having a joint account is that by pooling funds, you could meet the minimum balance requirements that qualify you for such things as higher interest rates on savings products and waived ATM and maintenance fees.
Whatever your reason for opening a joint account, it’s important to keep a few things in mind. First, remember that with a joint account, either party can withdraw funds without the other’s permission. Likewise, either party can talk to the bank about the account without having consent from the other person. Financial experts recommend only opening a joint account with someone you trust completely, and they stress the importance of maintaining strong communications when having a joint account so that neither party is caught off guard regarding money matters.