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Updated on Wednesday, February 13, 2019
Joint checking accounts are accounts with two or more owners, and opening one can be a big step for a relationship. They can help streamline household income, simplify your financial life and can be used positively as a vehicle to effectively manage everyday expenses.
Luke and Amber Olney, a married couple from Bourbonnais, Ill., both saw the process of creating a joint checking account as a moment of growth in their marriage, they told MagnifyMoney.
Amber, a stay-at-home mom, said she views the account as a “checks and balances” for the way she spends her money. “In moments where I used to be frivolous with my money, I now have to stop myself. First of all, I know Luke will see,” she said. “Second, this is not just my money. I need to spend it in a way that reflects both of us.”
But with a second person on your account, you also open the door to potential pitfalls, which could lead to both financial problems and tension in the relationship. Because opening a joint checking account can be such a big, and very personal decision, it is necessary to understand the benefits and risks involved.
The pros and cons of a joint checking account
Simplification. Opening a joint checking account comes with a variety of benefits for both you and your partner. According to Elizabeth Buffardi, a certified financial advisor in Oak Brook, Ill., one of the more obvious benefits to a joint checking account is simplifying your household’s finances. Having a one-stop account for the money needed to fund your monthly mortgage or rent, groceries, utility bills and other regular expenses, can help set you up for success to manage your expenses wisely. Opening a joint account can also expand the number of checking account options available to you. Combining your household incomes could mean you’d hit minimum balance thresholds required by higher tier checking accounts, which could mean less fees and earning higher interest rates.
You can get twice as much FDIC coverage. FDIC insurance offers protection for up to $250,000 per account also per account holder. So, if you both jointly own an account you are technically protected up to $500,000.
Building trust. A joint checking account could also help facilitate trust within the relationship. In Buffardi’s experience with married couples, she’s seen the process of creating a joint checking account as a moment of accountability for both parties. The dual access provides insight into the other’s spending habits, operating as a second eye on their purchasing decisions.
Increased risk. While a joint checking account can come with great benefits, there are risks involved as well. With both parties allowed equal access to the account, including the ability to make withdrawals without any approval needed, a “risky spender” could open the door to financial ruin if one is not careful. Buffardi has seen risky spenders drain joint checking accounts through excessive shopping, especially through debit card usage, online and in store. Habits like this can lead to expensive overdraft fees, missed bill payment, and the inability to fund the day-to-day household needs, such as purchasing groceries.
How to protect yourself
Since both parties attached to a joint checking account are responsible for the funding of the account, as well as liable for all fees associated, it is important to establish safety measures to maintain financial security.
Set ground rules. One of the best ways to protect yourself is to come up with a budget both parties agree on and know that they can stick to. According to Buffardi, “the goal of going through a budgeting exercise is not to limit you. A budget is there to make sure you’re spending money on things that give you joy, while still maintaining your household expenses and growing your savings.” Buffardi recommends working together to create a budget that you can both follow, and to check in regularly with each other. Open and constant communication about finances will ensure that you are still on the same page.
Use a hybrid approach. In a situation where someone in the relationship has poor spending habits, it can be helpful to have a second checking account separate from the joint account. The account can be used to hold budgeted spending money set aside for the risky spender to shop with, and the debit card for the joint account should be taken away. In Buffardi’s experience, a debit card can be the tool that puts couples in jeopardy with their finances as it can be viewed by some as “free money”, easily swiped and scanned.
How do you know if you’re ready for a joint checking account?
Have an open conversation. Deciding to open a joint checking account can be a big step in a relationship, so the conversation might be a difficult one to have. Buffardi recommends being completely honest with your partner about your financial situation, and to remain sensitive to their reaction.
While some couples, like the Olneys, see it as a natural progression of their relationship, others can have a completely different outlook on a joint checking account.
“Many people can experience a certain loss of freedom when giving up their personal checking account and creating an account with their partner,” says Buffardi. “The conversation might dig up feelings of anxiety as [a joint account] gives the sense that the person now has to report in to somebody… [as well as] give a good reason on why they’re spending money the way they are.”
Buffardi advises approaching the conversation with care, and to be open to the possibility that your partner may not yet be comfortable with the idea.
A joint checking account isn’t for everyone, or right for every couple. Buffardi recommends that if you’re uncomfortable talking openly about finances and are not quite ready for your partner to have insight into your regular spending habits, it is probably not the best time to open a joint account. In that case, she recommends coming to an agreement on who will be responsible for household expenses, and to continue to still stick to a budget. However, Buffardi highly advises maintaining a joint savings account no matter what. Having multiple savings accounts across multiple banks can mean less income from interest earned on the account over time. Depositing into one savings account with the highest interest rate will yield the most growth for the account, setting you and your partner up for a healthy financial future regardless of whether you have a joint checking account.