Joint Account: What It Is, How It Works, Benefits, and Pitfalls

What Is a Joint Account?

A joint account is a bank or brokerage account shared between two or more individuals. Joint accounts are most likely to be used by relatives, couples, or business partners who have a level of familiarity and trust with each other.

A joint account functions like a standard account, such as a checking or savings account, and allows anyone named on the account to access its funds. All owners can withdraw cash, write checks and make online payments.

Key Takeaways:

  • A joint account is a bank or brokerage account shared by two or more individuals.
  • Joint account holders have equal access to funds but also share equal responsibility for any fees or charges incurred.
  • Transactions conducted through a joint account may require the signature of all parties or just one.

How Joint Accounts Work

Joint accounts work just like regular accounts, except they can have two or more authorized users. Joint accounts can be established permanently, such as an account for a couple into which their salaries are deposited. The account may also be temporary, such as an account between two parties who are contributing funds in the short term.

Bank accounts held jointly between two parties may be titled with an "and" or an "or" between the account holders' names. If the account is listed as an "and" account, then both/all parties must sign to access the funds. If it is an "or" account, only one party must sign. 

Accounts jointly held include deposit accounts at banks including checking and savings accounts, credit cards, and other credit products such as loans, lines of credit (LOC), and mortgages. The joint status authorizes all those listed on the account to full use, but also the responsibility for any payments, fees, or charges incurred.

Opening a joint account is as simple as opening up a single account. Both parties should be present at the bank when the account is open—whether that's a deposit account or another product like a mortgage or loan. For credit cards, adding a secondary or authorized user is akin to opening a joint account. In most cases, this requires the signature of the second party.

Uses and Benefits of Joint Accounts

Joint accounts can be helpful in their holders and provide several benefits. Many funds require minimum balances, particularly if the holder wants to access the benefits of a specific account type. By pooling their money, two people can bypass this requirement and reap the benefits of the account.

Opening a joint account may also be helpful to newer couples who are combining their finances. Couples may find it easier to have a single account into which they can deposit their paychecks and make payments for their rent or mortgage, bills, or other joint debts.

A senior may find it helpful to add one of their children or another authorized user to their accounts to pay bills and do routine banking on their behalf if and when they are not able to do so on their own.

Pitfalls of Joint Accounts

Joint accounts can cause problems, however, because they generally provide all parties unlimited access to the funds. Thus, if one spouse has difficulty controlling their spending habits, this may affect the other spouse, who may be more frugal. The frugal spouse cannot challenge the withdrawals or transactions of the other spouse with the bank because they are listed as a joint account holder.

Another thing to remember with joint accounts is that all parties with access are responsible for any fees. If your husband runs up your joint credit card, you are equally responsible for paying it back. Similarly, if your joint checking account goes into overdraft, you are liable for a negative balance.

The government may seize any funds in a joint account to satisfy an outstanding order. That includes back taxes that may be owed, child support, or other court-ordered garnishments.

It is best for both parties to speak to discuss the responsibilities associated with opening a joint account before doing so. This can avoid any unnecessary problems and conflicts that may arise.

All parties should discuss the pros and cons of opening a joint account to avoid potential future conflicts.

Joint Account Rights

Several titling mechanics designate how the funds are divided if one of the parties on the account passes away. These options are required on brokerage accounts.

Joint Tenants with Rights of Survivorship (JTWROS): If one of the parties passes away, the assets in the account pass by the rule of law—outside of probate—to the surviving parties.

Tenants in Common (TIC): This allows each joint holder of the account to designate their beneficiary for their portion of the assets in the event they pass away. Instead of transferring by the rule of law to the second account holder, the assets are passed to the beneficiary. In addition, the assets may not be automatically split 50/50. The TIC designation allows the tenants to divide property ownership in any way they choose.

Joint Tenants option: This option mandates a 50/50 split of the assets in the joint account.