When you open a joint account with a partner or spouse you are linking your finances together, so it's a good idea to think through the options before taking this step.
A joint account is a rite of passage for many couples. Rather than quibbling over every shopping bill you just put your money into the same account.
It can be very convenient if you're sharing the cost of rent or mortgage, as the money from your joint account can be used to pay for your household costs. Likewise, household bills and direct debits for utilities, broadband, and subscriptions can automatically leave your account with you having to sit out and sort out who owes what. You can also use your joint account to pay for food shopping and for meals out.
However, not everyone who is in a relationship or partnership might want to share a bank account with their partner. There are a number of considerations to think through before you pool your finances. Here are some issues to think about before you open a joint bank account.
Pay in your salary:
Some people choose to pay all their income into their joint account. This means their salary or other income is paid directly into the account they share with their partner.
This is the closest financial relationship you can have – all your money goes into one account and you sort out your bills and other expenses from that one account.
Advantages of a full joint account:
Having a joint account simplifies your finances because you can pay for everything from a single account. You can each have a debit card and cheque book linked to the account, and recurring expenses like mortgage repayments can go out of your bank account each month.
You also do not need to worry about sitting down each week and working out how much each person has spent on food or entertainment.
Disadvantages of a full joint account:
It's rare for a couple or partners to each earn the same amount of money. It is likely that one person will earn more – so you need to be sure that the person earning the greater salary or income is happy for their income to go straight into the account to be used for shared purposes.
It's a good idea to discuss how money from the joint account is spent on separate treats and hobbies. Does one partner need to ask before they make a significant purchase? How are you going to set a balance between spending and earning if different partners have different priorities?
You can see that opening a joint account is more complicated than simply sharing the bills. As a couple or partnership you need to be clear about spending boundaries and costs. Often in couples one person is more frugal or extravagant than the other.
Another option is to open a joint bank account into which you each pay a set amount of money each month, but keep the rest of your finances separate. This might not be equal shares – it depends on what each partner earns.
It could be that one person pays more into the joint account than the other, but this is something you will need to discuss with your partner before you open the joint account.
Couples can each keep their own separate bank account in their own name, and arrange for a monthly direct debit to be paid from their single bank account into their joint bank account to cover all the bills.
Where you're unsure about whether you want to share your finances fully, or one of you earns a lot more than the other, or you have differences over spending priorities, this could be an option. The advantage is that you keep your financial independence, and one person doesn't have to ask the permission of the other to spend money on hobbies or treats.
Where you're moving money between different accounts it can be hard to keep track of what you're spending. Also, you need to decide how and who is going to pay for big items such as holidays or a new washing machine or car. If one partner also spends a lot each month and the other one prefers to save, the frugal partner might end up feeling resentful.
A joint account demonstrates a level of trust between a couple, playing an important emotional role. A joint account also means you can borrow more, as your income and savings are pooled.
A creditor can look at your joint savings and offer you far more money than if you were looking to borrow by yourself, making simple steps like getting on the housing ladder more attainable.
Unfortunately, the convenience of a joint account also comes at a price.
First, there is the obvious point of trust. A joint account gives your partner access to all your money, so your relationship should be on a secure footing.
Should one partner choose to withdraw or spend a large amount of money you have no legal ground to get it back if it's a joint account.
There's another risk around the amount of savings you might have in a joint account. Everyone's savings are protected by the Financial Services Compensation Scheme (FSCS scheme) in the UK up to a maximum of £85,000 per provider. However, those limits don't double if you have a joint account, effectively halving your coverage.
What's more, Individual Savings Accounts limits are per person, so your tax-free savings allowance will similarly be curbed if you choose to pool your resources.
That means that when it comes to day-to-day spending a joint account can be very convenient, but when it comes to saving larger amounts a little distance could be a blessing.
There are pros and cons of having a joint bank account when it comes to your credit score, which is a measure of how likely lenders are to approve your applications for credit like mortgages, loans and credit cards.
When you open a joint account with someone, you create a financial link. If you both have a good credit score, this can improve your chances of being approved for a mortgage. However, if one of you has a poor credit history, this could affect the score.
Opening a joint bank account is straightforward and similar to opening a bank account in your own name. You can do it online or in a branch. You will need ID and other documents including proof of address and passports.
Remember that if you open a joint account and one of the account holders spends the money and goes overdrawn, you're jointly responsible for paying back the debt.
So while a joint account can be a good idea, you do need to think through the options carefully before going ahead.