If you’re thinking of taking out a joint savings account, consider the pros and cons now to ensure you don’t get caught up in a sticky situation later.
A joint account is a product for those who want to combine their savings together and open an account that both parties have access to and can contribute to. Essentially, you merge your money together in a special joint account with one or more partners and you can all access the funds in the account.
Joint accounts are appropriate for couples who want to save together, those wanting to establish a partnership, business partners or for people in established relationships who share bills and expenses.
Before you set up a joint account there are a number of things you should consider. These include the risk of the account (what happens if the relationship falls through?), the levels of contribution (will both parties equally contribute to the joint account?) and any debts your partner may have already incurred or will incur.
How does a joint account work?
A joint account is essentially a bank account that two or more people share. These accounts tend to be opened by families, couples or business partners. Typically, to open one of these accounts you should have a high degree of trust between one another.
Once the account has been opened, all parties can make deposits, transactions or withdraw money. Joint accounts are typically long-term accounts but some can be short term when saving for something in particular, for example a car. If one party passes away, the others are responsible for the account and the debts incurred.
Some accounts can be high-interest accounts, especially those designed for saving or transaction accounts for making everyday purchases and paying bills. There are generally two types of joint accounts: ‘both to sign’, where both parties must sign off on transactions, or ‘either to sign’, where only one party must sign off on transactions. Whichever type of account you choose, it’s essential to know the other party will be responsible with the money.
Pros and cons of joint savings accounts
- Fewer fees. People sometimes opt for joint accounts because they attract lower fees than having two separate accounts. One account has less ongoing fees and charges than two accounts./li>
- Easier to manage. Often a joint account is easier to manage, particularly if the parties are both working towards the same financial goals or paying off the same expenses and debts such as a mortgage, rent or bills. These accounts work well for partners who spend their money in similar ways and on similar things already.
- Safety net. Joint accounts can provide a safety net and a sense of being looked after if something was to happen to you. If you fall ill or have a bad accident and you don’t have a joint account, there can be a lot of legal red tape to wade through for someone to get access to your own account. With a joint account, if something happens to you, someone you trust will have access to your account and will be able to make decisions for you with the money in the account.
- Establish partnership. A joint account is a good way to establish and prove that you are in a domestic relationship or partnership with someone. Showing your joint account documentation will be sufficient proof in most cases.
- Establish equality. In some partnerships, particularly marriages, one partner may earn more money than the other due to other commitments such as raising children. A joint account is a good way to establish equality in the relationship and show you appreciate and value your partner’s non-monetary contribution to the relationship by allowing them to have access to the money in the account.
- Trust. As mentioned, it’s extremely important to only enter into a joint account with someone you really trust. If you don’t, the other party can make withdrawals and transactions using the money from the account that you don’t approve of.
- Debt. Another con with joint accounts is the debt that the other party incurs can be your debt. Also, in the case of death, your fellow account holder’s debts become your debts. This applies more to those opening joint credit accounts such as credit cards or home loans.
- Differing contribution levels. A joint account may not be the right choice for those who contribute very different amounts. To some people, knowing that they are contributing more than the other party and they still have equal access to the funds can be off-putting. Many people do prefer to keep their funds separate for this reason, particularly when one is a higher earner.
How to apply for a joint account
If you have decided that a joint account is appropriate for you, applying is as easy as finding the one you like and clicking ‘Apply Now’. You then need to follow the link through to the lender’s website and initiate your application. Before you apply, there are some typical eligibility requirements to consider first. You must be a permanent Australian resident and have consent from all parties, while you may need an existing account with the financial institution.
You may also have to provide the following documentation for each partner/s along with your application:
- Proof of identity
- Financial institution account details
- Contact details