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Setting up a joint account is a common and practical step that many couples take to make managing household expenses easier.
However, it’s important not to rush into this decision, as joint accounts can have long-term implications.
We spoke to Matthew Parden, CEO of money management app Marigold & CompanyWho explained what a joint account is and outlined its key benefits and drawbacks.
What is a joint account?
,A joint account is a current account and unlike a single account, which is only in your name, there are at least two parties involved in that account,, says Parden. ,Joint Accounts are typically set up by co-living couples who have joint finances and need to receive contributions or income from both parties to the account.
“They are typically used to pay bills and general household expenses.”
What are the benefits of opening a joint account?
“The main benefit of a joint account is that it enables people to combine their finances and have transparency about contributions and income and outgoing bills and expenses,” Parden highlights. “Its transparency can help people manage their money more effectively.”
For example, joint accounts can also be very helpful for mortgages.
“Instead of paying from two separate single accounts, mortgage payments can be made from one joint account,” says Parden. “So, there are clearly contractual reasons why there might be a joint account, which then generally has the resulting benefit of being used for joint finances.”
Are there any risks in opening a joint account?
“Some people don’t realize that there is a financial relationship between the parties in a joint account that can impact credit files,” Parden highlights. “So, if there’s an overdraft on that joint account, or the account goes over an existing overdraft, it can impact both people’s credit files, credit records and credit scores.”
Additionally, having a joint account can put your money at risk if the other person makes unauthorized withdrawals or takes a loan.
“If there’s a lot of money in there, it legally belongs to both of those people, so someone can empty it,” says Parden. “For example, if your relationship turns sour, someone could theoretically take all the money out and it could be difficult to get it back.”
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If you want to suspend your joint account, the first source of call should be the bank that holds the account.
“You need to contact the bank and inform the bank of the fact that there is no longer a financial relationship, and you want it to stop,” says Parden. “But it’s quite possible that, if there had been a breakdown, the money would have already been gone.”
What are the important discussions you should have before opening a joint account?
First, assess why you need it.
“Ask yourself why you need it,” advises Parden. “You both need to have an understanding and agreement about what the joint account is actually for. It may be that you need to combine finances and have two incomes going in and costs going out.”
The next important step is to set clear expectations.
“Talk about what each party’s expectations are for contributions to the account,” Parden recommends. “Are you going 50/50, 75/25 or 100/0? It’s really good to have an understanding of what’s going in and what’s going out.”
Checking in regularly can be a great way to feel more in control of your finances and less stressed.
“Keep track of what’s happening with the balance and check-in on a regular basis to make sure contributions are enough and to see if you need to adjust the amount of money coming in,” says Parden. “It’s very easy to risk the balance going into overdraft at the end of the month, and you want to be told and understood before that happens, so you can actually resolve it.”
What options do you need to weigh when opening a joint account for the first time?
“Maybe you want online banking options or want an account that’s tied to the only accounts you already have,” says Parden. “The ability to use these accounts on apps can also be really useful as they can clearly display shared finances and help you with budgeting and reviewing your overall spending.
“Interest rates will probably not drive this decision as most current accounts have low interest rates.”