Joint accounts
People open joint accounts for many reasons. Before you make this commitment, consider both the risks and the benefits and make sure you understand your rights and obligations.
Five tips for joint accounts
If you do set up and operate a joint account for savings, mortgage, credit cards, mobile phones or other expenses, you should have financial safety in mind to protect both yourself and your family.
Here are five tips for safely using joint accounts:
- Only open a joint account with someone you trust completely, such as your spouse or a parent.
- If it's a joint account for every day use, make sure that you and the other person share the same savings goals. Set some clear rules so you both agree what the account is for.
- When you have a joint account with someone else, you need to communicate with each other about your spending. Otherwise, it can be hard to keep track of who is spending what.
- Treat it as a warning if someone is bullying you into opening a joint account. It is a sad fact of life that personal problems (like gambling) can cause someone to steal money even from close family and friends.
- If you're considering setting up a joint account for reasons of convenience, stop and look into the option of setting up direct debits instead.
Two signatory options
When opening a joint savings account, you may have to choose between the options of 'both to sign' or 'either to sign'.
Both to sign |
If you're worried about security, you can choose the 'both to sign' option. This means that no transactions can take place without both parties agreeing. However, this can be inflexible. |
Either to sign |
If you need more flexibility, the 'either to sign' option may suit your needs. This means each party can transact independently of the other. This is less secure because one party can act without the knowledge or approval of the other. |
Potential benefits of joint accounts
If you trust your partner, a joint account can be a good way to manage your money for the following reasons:
- You may only have to pay one set of fees
- Pooling your money together may make budgeting easier - if you communicate well
- If one of you is away for an extended period of time, the other can manage your finances for you.
The key to opening a joint account is to trust the other person. Joint accounts can be very useful as long as you and the other account holder have clear ground rules and communicate often. Like anything to do with your personal finances, investigate all the options, ask lots of questions and make sure you feel completely comfortable before agreeing to anything.
Horror stories
Keith
Keith is young and lives away from his family. He does a lot of travelling around Australia for work and was worried about not paying his bills on time. Keith decided to open a joint account with Jenny, his girlfriend of three months so she could pay his rent and mobile phone bills while he was away.
At one point, Keith was away for several weeks and decided to check the account balance online to make sure his employer had paid him that week. Keith was shocked when the balance was close to zero. The rent and mobile phone bills weren't usually that much.
So, Keith immediately tried to contact Jenny to see what was happening - but there was no answer to any of his emails and calls for three days.
When he got home he found out that Jenny had been withdrawing money from the joint account, and not even paying all the bills. Needless to say, the relationship was over and Keith was left out of pocket and regretting his decision.
After that, Keith decided to set up direct debit payments for all his bills so he wouldn't need to open a joint account ever again.
Missy
Missy was married for five years before she and her husband decided to separate. They had used their joint account to pay all their bills and save for their kids' education. They had over $10,000 in the joint account.
A couple of weeks after the separation, Missy was paying for her groceries at the local supermarket only to discover that her card was declined. There was no money left in the account and she couldn't pay for her trolley of food.
Missy immediately rang her bank to complain only to find out that her husband had emptied the joint account. The bank hadn't done anything wrong and Missy now has to fight to get her share of the money back. In the meantime, she can't access the money.
What about additional credit cards on your account?
It is quite common for your credit card provider to offer you the option of having additional cards for family members. Usually, these are not considered to be joint accounts. The primary credit card holder is usually solely liable for the debts – despite having additional cards.
If you're considering getting a joint account for anything, FIDO strongly suggests you ask your financial institution lots of questions until you fully understand the rights and obligations of each account holder.
Read more about credit cards.
Potential impact on your credit rating
Some joint accounts offer credit facilities. If that's the case, there is a risk that if one account holder racks up a big debt, the other could be left to foot the bill. If you can’t pay it off, you could also end up with a bad credit history, which will make it harder, and more expensive, for you to borrow money down the track.
Read more about your credit report.
FIDO Website: Printed 02/10/2010
