Joint Bank Accounts: The Pros and Cons of Shared Checking
Sarah Scott and Farhan Khan have a system that has worked well for them over the course of an almost 25-year marriage. They have a joint bank account, yet at the same time each maintains a separate checking account, funding those with what they call “an allowance,” which is expected to cover personal purchases such as clothing, salon visits and miscellaneous items like music.
“We deposit $200 per paycheck into each of our own separate accounts,” explains Scott. “It gives us personal financial responsibility and an outlet to buy things we value. We had always heard that one reason married couples get divorced is over finances, especially if people don’t feel like they have their own money that they can do whatever they want with. But at the same time we wanted to grow our joint account. All expenses for our home and child, as well as what we contribute to saving for college and retirement, come from there.”
Whether to pool money or keep it separate is one of the most important decisions a couple can make at the start of a relationship. A joint account has the name of both people and can be accessed by either without permission from the other. An individual account is limited to only the person whose name is on the account.
“Finance is definitely something to discuss when you’re becoming a couple,” says Catherine Principe of Associated Bank. “I think it’s very important to understand the goals and objectives of each person.”
Principe offers some pros and cons for both joint and separate accounts.
1. Convenience. One of the pluses of joint funds is simplicity. “As we all know, it’s much easier to have one bank account to balance and monitor and one bill to pay or one certificate of deposit to renew, whatever the case may be,” says Principe. There are no other accounts to worry about, and all money goes into one place.
2. Equality. Couples who work less or have one spouse stay at home with a child might feel that a joint account is a fair way of sharing funds even if their income is not equal.
3. Teamwork. Joint accounts can be a good way of working together—you can combine and grow your money to work toward your common goals. They can also help couples keep each other in check on spending habits.
4. Saving on fees. Joint accounts might also save on penalties and fines. “Most financial institutions have a minimum balance required to maintain in order to waive the fees,” says Principe. “If the bank requires $1,000 in the account at all times, your pooled money can help you reach that threshold more easily.”
1. Potential money battles. If all of your money comes from one pot, you might feel the need to discuss each item you buy with your partner. Make sure you talk about how you want to handle purchases so there are no surprises.
2. Buying gifts. It could be harder to pull off a secret gift if your partner can see every purchase made. Using cash to fund the purchase is one consideration to get around this, but keeping gifts a surprise might require some creativity.
1. Autonomy. Some in favor of completely or partially separated accounts, like Scott and Khan, say separate accounts create more harmony in their relationship because they don’t have to justify every expenditure.
2. Protecting individual assets. People who bring a lot of wealth or debt into a partnership might want to think about how that will affect their decision. “The plus of the separate account arrangement would be not to allow another person access to your account. I think it really depends on the relationship,” says Principe. For instance, an inheritance that goes into a joint account could be accessed by both joint owners; and if you don’t want that possibility to exist, it’s better to keep it separate. In the situation of an inheritance, Principe advises to talk to legal counsel and perhaps look into prenuptial agreements.
1. Keeping track of bills. Couples who opt for separate accounts need to be diligent to make sure that it’s clear who is paying what bill and that nothing is missed. On the flip side, some couples enjoy the feeling of having two pots of money to choose from when covering household expenses and find that splitting bills is not an issue.
2. Access to the account. If you do have separate accounts and one partner becomes incapacitated, the other would typically need a financial power of attorney to access the account. “We strongly advise in that situation that you work with your estate advisor or attorney to find out what would work best for you because each situation is very different,” says Principe.
Principe has noticed that more young people are keeping separate accounts, while older generations still tend to lean more toward joint accounts. It’s a very individual decision, though, and is not limited to married couples. Unmarried partners can legally share finances if they both put their names on an account. “Anybody can have a joint account regardless of the relationship, and the account holders would have full access rights,” says Principe.
Scott and Khan have been extremely happy with their system of mostly shared monies, and Scott would recommend it to others.
“I recommend doing this. Finances can be stressful. When people have individual spending power, they don’t feel confined or have to ask the other person permission to spend money, which creates a whole bunch of other underlying issues.”
Whatever you decide, the most important thing is for couples to open the conversation at the get-go and find the system that is best for them, keeping everyone on the same page from the very start.