It’s a pretty big deal when you’re ready to pool finances with another person. And it's a decision you can navigate different ways.
You could, for example, decide you want to keep expenses separate and then settle up at the end of every month. Or, if you’re sharing bills for bigger reasons – as in you’re sharing your lives – you may also want to consider a joint checking account.
Two immediate benefits?
But – and you knew there was going to be a but – there are a few things you’ll want to consider before you open a brand-new joint checking account or add a partner to a checking account you already have.
Let’s run through some of them.
A joint checking account is a “what’s mine is yours” situation: Anyone listed on the account can use the money.
This is a simple setup, which can make it easy to overlook this very important detail: Joint checking accounts probably don’t have rules about how much each person can deposit or withdraw, so it could be worth setting up rules of your own for some financial peace of mind.
The goal here is to make sure you agree on the account’s purpose and each person’s role to hopefully avoid financial misunderstandings later on. Plus – you can change the rules! Just make sure you do it together.
The short answer is no. A joint checking account can make sense in a variety of circumstances like if parents want to provide funds that college-age kids can use, or if you’re helping manage finances for elderly parents.
Also important: As the Social Security Administration points on out its website, consider if a joint account could have an impact on an account holder’s Supplemental Security Income, also known as SSI. (It has to do with how the agency looks at the balance.)
If you don’t yet have a joint account but will be sharing one with someone with an SSI benefit, ask your local Social Security Administration office for tips on how to set up the account to protect their benefit’s amount. If you already have a shared account, your local office could help you with some paperwork that could do the same thing.
Convenience is an obvious benefit you’ll want to check off when comparing joint checking accounts. Afew more things to consider include:
Bonus question: Are joint accounts FDIC-insured?
If you’re opening an account with an FDIC-insured institution, your joint checking account should be covered. FDIC insurance means deposit accounts (which includes checking) are insured up to the maximum allowed by law, which is currently $250,000 for all your individually-owned accounts combined, $250,000 per owner for jointly owned accounts. The FDIC insures deposits according to ownership type, so in this case each account holder of the joint account would be insured up to $250,000 for all of their jointly owned accounts.
This is probably not on the account application, but you really need to feel confident that the person you’re sharing the account with will use the money as expected and agreed.
The less philosophical things you may need for a joint account include:
Checking accounts aren’t great reservoirs for cash because they typically earn little to no interest. If you’re looking to make the most of your cash, your checking account should hold enough to cover known and recurring expenses.
As for the money that’s left over, you might consider dropping it into accounts that can earn their own money on the side like an IRA in addition to a 401(k), a high-yield savings account or a certificate of deposit (CD).
If the rules you’ve set up for your joint checking account include using the money for shared expenses, it makes sense to limit your deposits to just those expenses.
If your goal is to use the joint account as a financial landing pad for your combined income, you could schedule automatic transfers to accounts that are dedicated to goals like a down payment on a home or car and still keep the balance to cover any minimum and planned expenses.
There could be taxes tied to the account. If you file as a couple, you’ll have to note any interest you earned in your account on your shared return. (You may pay taxes on it.)
If you file separately, it’s a little more complicated but you can find filing information in the IRS’ form 550 (look for the term “joint accounts”). You could also lean on your tax advisor for help navigating the requirements.
Situations can change, and you may need to close a joint checking account. For example, when a child finishes college and you’d agreed to shut it down when they got their degree. Or maybe you and your partner (amicably) split up.
But there are more complicated reasons you may need to close a joint checking account, like divorce. In this situation, the “what’s mine is yours” idea of a checking account may not be 100% accurate; in some cases state laws could determine how much money belongs to each of you. Consider asking your attorney how to handle joint accounts.
Another situation where you may want or need to close a joint checking account is when a joint account holder dies. If this happens, it’s important to know if the account includes “rights of survivorship.”
Let’s say it does; then control of the account goes to the living account owner. The benefit here is that the account owner could avoid probate court. However, you may want to consult with a lawyer about what you can and should do with money that’s still in the account.
There other ways to approach shared finances if a joint account doesn’t feel quite right.
This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.