Joint bank accounts, the benefits and the risks

Money Smart
(ASIC)

One account, two names

Opening a joint account with your partner is a huge commitment and one of the biggest decisions you will make in your relationship. Only do it if you completely trust them to responsibly access the money, in good times and in bad.

Here are some tips to work out whether a joint account is right for you.

Risks of joint accounts

It's not a good idea to open a joint account with someone you have just met as you are giving them access to your money. Joint accounts are only suitable for people who trust each other deeply, like a family member or your long-term partner.

Case study: Costa's girlfriend takes him for a ride

Costa works interstate a lot. He decided to open a joint account with his girlfriend, Jenny. The joint account meant he wouldn't have to worry about paying his bills when he was away as she would arrange it for him.

A few weeks later, Costa checked his account to make sure his boss had paid him that week. He was shocked to find there was no money in the account. Costa tried to contact Jenny but she would not return his calls. He rang his bank and found she had withdrawn all his money. She could do this as it was a joint account that did not need his permission for withdrawals.

After this bad experience, Costa got a separate bank account and decided to set up direct debits for his bills. It would be a long time before he trusted anyone with his money again.

Be very wary of anyone pressuring you to open a joint account. People do have money troubles and may see you as a way to help solve their financial problems.

If you open a joint account which offers credit, and one account holder racks up a large amount of debt they can't pay back, you both risk having a bad entry on your credit report. You are also legally responsible for paying off the debt.

Benefits of joint accounts

People often open a joint account because they pay fewer fees with one account than two. It can also make joint payments like mortgage, rent and other bills easier to manage.

Joint accounts work well for people who spend money in a similar way. Both people should agree how and when they will deposit and withdraw money, to meet the same goals.

If you are thinking about opening a joint account, ask yourself:

• Do I trust the other person completely even if times get tough?
• Do we communicate well about money matters?
• Do we have similar goals for our money and similar spending habits?
• What is our objective in opening a joint account? Is there a better way to achieve this objective?

A shared account for shared bills

One way to make things more convenient for you and your partner would be to keep your money in separate accounts but open one shared account for your shared bills. Discuss with your partner what bills you will pay with your shared account and how much you each will contribute.

Types of joint accounts

There are two types of joint accounts.

Both to sign

This type of account only allows transactions to be made when both parties sign. For example, if you don't agree that your partner should spend money from the account on a new motorbike, they wouldn't be able to access the money without your agreement. If you are worried about security, this may be a good option for you.

Either to sign

This account allows both parties to transact independently of each other. This is a less secure option because one person can withdraw and use the money without the approval or knowledge of the other.

Case study: Missy's ex-husband empties their bank account

Missy was married for 5 years before she and her husband decided to separate. They had over $10,000 in a joint account that they used to pay bills and save for their children's education. A couple of weeks after the separation, Missy's card was declined in the supermarket. There was no money left in the account and she couldn't pay for her groceries.

Missy rang her bank to complain only to find out that her husband had emptied the joint account. Their account allowed either to sign, so her husband hadn't done anything illegal by emptying the account. Missy talked to a lawyer who told her she would have to fight to get her money back, which could take years.

Additional credit cards on your account

Your credit card provider may offer you the option of having additional cards for family members. These are not strictly joint accounts and the primary credit card holder is usually solely liable for the debt. For more information see secondary credit cards.

Closing a joint account

There is more to closing a joint account than just cutting up the card. Follow the steps below to close the joint account properly.

1. Both owners need to agree - Before you start closing a joint account, both owners need to agree that the account should be closed. Agreeing on this will help avoid any delays when it comes to arranging the closure. If you cannot agree, contact your bank to advise them of a dispute between the joint account holders. They may be able to freeze or put a temporary stop on your account until you are able to resolve this, or they may require both of you to authorise transactions on the account. Make sure you have another account to use for your pay and to pay bills.
2. Sort out direct debits and credits - Ask your bank for a 13-month list of any direct credits and direct debits for your joint account. Contact your employer and anyone else who regularly puts money into your account, including Centrelink, to tell them of your new account. Cancel all direct debits from your joint account and make alternative arrangements to pay these bills.
3. Zero balance - Pay off any overdrawn amount and work out with your former partner how you will divide the remaining account balance. Your balance must be zero before you can close the account.
4. Call your bank - Tell them you would like to close the account. They will need to verify both owners' identities. Take note of the date and time you called, and the name of the customer service officer you spoke to.
5. Put it in writing - Follow up your call with a letter confirming you want to close the account. Include your joint account details, both signatures, and details of your phone call. Ask for written confirmation that the account has been closed. Keep a copy of your letter in case there are any issues later.
6. Confirmation - You should receive confirmation from your bank once the joint account has been closed. This could be a letter or a final statement. If it does not arrive, follow up with the bank.

Think very carefully before opening a joint account. Communicate openly with the other person to make sure you both have the same financial goals. Don't be pressured into opening a joint account as you could lose your money.