Forget about making Facebook official. Opening a shared bank account is the real way to show that you are committed.
OK, not really. For many married couples, long-term domestic partners, families, and even roommates, shared bank accounts make it easy to manage budgeting and bill sharing.
What is a shared bank account?
A shared bank account is similar to any other bank account you open with your bank or credit union. You can use them to save money and earn interest, write checks and swipe a debit card to make payments, and even set them up for direct deposit and automatic bill payment.
So what’s different? You are not the only account holder. Several people (usually two, but with some banks up to four) can act as account holders on shared bank accounts. That means they have the same rights to deposit and withdraw funds, and are just as responsible for overdraft fees as you are.
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Why a common bank account might be right for you-
The main reason people open a shared bank account is because they are married or domestic partners with shared expenses and shared savings goals. When you share a bank account, you may be a little more disciplined with your own expenses and develop a team mentality to save for specific goals.
However, romantic partners are not the only ones opening joint bank accounts. Sometimes parents add kids to their accounts, like college students or young teenagers just learning the ropes of money management. Individuals with aging parents can be added to their parents’ accounts to simplify the cost of medical expenses or trips to the grocery store. If you trust your roommates enough to open an account for rent and utilities only, there is an easy way to cover shared household expenses.
A great advantage of shared bank accounts is the financial power of the combined money. Often times, certain accounts pay higher interest rates when you have more money in them. With more than one contributor it is easier to reach this amount.
Possible pitfalls of shared bank accounts
Attention bankers: common bank accounts have a amount So make sure you trust your co-account owner on a personal level and a financial level before opening.
If a relationship or friendship ends badly, the other co-account holder can first empty the account before you can freeze (or withdraw) the funds yourself. If your relationship is on rocky ground, having a shared bank account isn’t a good idea.
Some partners who don’t see spending and saving on par should consider separate accounts to avoid fighting.
Instead of pooling all of your savings in one account, create a split-bill monthly contribution and keep the rest of your finances separate.
Another major disadvantage of shared bank accounts is what can happen if your co-account holder is poorly managing funds. You may be solely responsible for the overspending, but the bank will hold you both responsible for the resulting overdraft fees – and you will lose all money spent too.
Shared bank accounts can also have a negative impact on your credit score. If the other account holder has bad credit, your own score will likely go down.
In addition, all funds in a common bank account will be offset against both of your assets. That said, if one of the account holders files for bankruptcy, the money in the shared bank account is a fair game to their creditors, even if you actually contributed most of that money.
Equally frustrating is that funds shared with your child in college can count towards them for financial assistance, while an account shared with someone at Medicaid can exclude them from receiving benefits.
After all, shared bank accounts can get messy when one of the owners dies. Because of the “right to survive,” all of the money goes to the other co-owner, even if you intended to distribute some of it to other family members, friends or organizations through your will.
And even if you intend to pass the money on to the co-owner after death, the co-owner may still have to deal with inheritance taxes depending on the amount in the bank account.
FROM THE BANKING FORUM
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How to open a joint bank account
If a shared bank account makes sense for you and your partner, parent, child or roommate, apply online or visit a branch of your chosen bank in person to open the account. The process is usually straightforward. Be sure to bring the following:
Proof of identity such as a driver’s license or passport
Proof of address, like an electricity bill
Your first deposit (this can also be withdrawn electronically from an existing account at another institution if required)
You have to fill out an application and voila! You now have a joint bank account. You should be provided with a debit card, check book, and information about how the account works.
Check out our current list of bank promotions to receive a cash bonus when you sign up for a new bank account.
But before you sign on the dotted line, ask a few key questions:
What happens if the relationship with the co-account holder ends? How do you freeze money?
Can one person withdraw all funds at once? Is it possible to limit withdrawals if both / all parties are not present?
Who is responsible for paying overdraft fees?
Are you considering an online bank for your new shared bank account? Check out our favorite online savings and online checking accounts for 2019.
Timothy Moore leads a team of editors and graphic designers for a market research firm as his full-time appearance. As a freelance writer, he writes on personal finance, careers, education, animal care, travel, and the automotive industry. His work has been published on Debt.com, The Ladders, Glassdoor, and The News Wheel.