When to Consider a Joint Bank Account

Joint bank accounts can be ideal for couples, parents and their teenagers, and adults assisting their aging parents. They function just like personal accounts, such as a checking account, but belong to both people, each of whom can contribute to and use the money it holds.

On paper — and in an ideal world — joint accounts are great. What could possibly go wrong? Well, a few things. Here’s a look at their strengths, a few scenarios to avoid and what to consider:

Pros

• Parents can monitor a child’s spending habits and can quickly transfer money to a joint account when necessary.
• Couples can use cash in a joint account to cover shared expenses such as rent, utilities and food.
• Adult children can help aging parents manage their finances.
• If a parent dies, an adult child has immediate access to funds in the account, avoiding a potentially lengthy legal process.
• Each account holder is insured up to $250,000 by FDIC or NCUA insurance coverage at a bank or credit union.

» MORE: NerdWallet’s best checking accounts and debit cards

Cons

• A child may spend too freely and become overly reliant on mom or dad refilling the account.
• Neither partner can control spending from the account, so one could drain it.
• One partner could overdraw the account, generating fees both would have to cover.
• If one holder lets debts go unpaid, creditors can pursue money in the account for settlements.
• Both holders can see transactions in the account, which can present privacy issues.

When to consider it? When there is communication and trust

Whether you’re planning on sharing an account with a child, significant other or aging parent, keep the channels of communication open. That may mean having difficult discussions about spending and saving habits. As uncomfortable as it may be, initiating these types of conversations can prevent even bigger headaches down the road, like those listed above.

“It’s important to lay out expectations with the other account holder,” says Carrie Houchins-Witt, a financial advisor in Coralville, Iowa. “If your teenager hasn’t quite grasped the concepts of saving and spending and personal responsibility, be careful about putting money in the account and expecting them to budget properly without your guidance.”

Opening a joint account

Setting up a joint checking account is much like opening a personal one. Here’s what the process will probably look like:

• Select the “joint account” option during the application process.
• Provide the bank or credit union with personal information for all account holders, such as addresses, dates of birth and Social Security numbers.

If you’re opening a joint account with a significant other, don’t close your personal account, at least not right away. You may want to have money of your own for expenses or for gifts and surprises.

» MORE: How to open a bank account and what you’ll need

Next steps

If you have a teenager, you might also consider opening a teen checking account. These accounts can have lower fees and may place daily restrictions on how much cash your child can withdraw from an ATM. However, that may mean opening an account at a bank or credit union other than your own, which could make it more difficult to transfer money quickly and cheaply.

Tony Armstrong is a staff writer at NerdWallet, a personal finance website. Email: tony@nerdwallet.com. Twitter:@tonystrongarm.

This article was updated June 22, 2016. It was originally published on July 24, 2012.