A joint bank account allows for each account owner to make deposits, withdrawals, transfers and similar activities. Responsibility for activity on joint bank accounts works a little differently than for individual bank accounts, but they could provide some benefits in the right context.
Let’s look into how joint bank accounts work and what to consider before opening one.
What is a joint bank account?
Joint bank accounts are opened any time more than one individual applies – and is approved for – shared ownership of a bank account.
Joint bank accounts can be used the same way individual bank accounts are used, with the caveat that any of the joint account owners can access it, perform transactions and monitor its activity.
How do joint bank accounts work?
Any joint owner of the account can use it however they choose, meaning they can deposit, withdraw, and transfer funds at will. However, this also means that each joint owner is individually responsible for all activity on the joint account even if they did not participate in, or benefit from, the transactions on the joint account.
Your bank can act on the instruction of any one or more of the joint account owners at any time. In the event of conflicting instructions or a dispute among the owners of the account, though, your bank may require all joint account owners to act together in giving instructions or performing transactions.
Each account owner is also jointly responsible for all activity related to the joint account, including responsibility for paying overdrafts created by any authorized signer(s) or party to the account, whether or not they participate in the transaction or benefit from its proceeds.
Who pays taxes on a joint account?
Generally, interest received by account owners is reported by banks to the IRS for the year received, as required by applicable law. A bank may ask you to indicate a primary first titled holder of a joint bank account when the account is opened. If tax reporting is required, your bank will issue an information return to the first titled account owner. If a first titled owner is a foreign person and the joint owner is a US person, the bank will instead issue an information return to the US person. You should contact your bank for the important tax information provided to account owners.
What are the benefits of a joint bank account?
There are some benefits to a joint bank account, such as:
- Helps you keep better track of shared expenses.
- Encourages financial responsibility and transparency between account owners.
- Allows owners to pool their income for shared purchases, such as a house, a car, or a vacation.
How can you open a joint bank account?
Opening a joint bank account is similar to opening an individual bank account. You’ll first have to follow these steps:
Gather all necessary documentation
No matter the bank, each applicant should provide a government-issued ID, proof of residence and their tax identification number (often a social security number). This information is required from each person applying to be an owner of a joint bank account.
Apply with your bank of choice
Whether it’s a bank you have a previous account with or a new one, apply to open an account online, by phone, or in person. Make sure to contact the bank to see if they have specific steps for their joint bank accounts.
Make an opening deposit
Deposit money into the bank account so that you establish the account as active. You should also understand the fees for your account, the requirements to maintain your account, and if you can avoid any potential service fees by maintaining a specific balance or performing certain activities.
How can you close a joint bank account?
Any joint account owner may close a joint account. To do so, first stop withdrawing, depositing, transacting and transferring money into that account. After that, you’ll need to withdraw all the funds from that account and deposit them somewhere else. (And it’s not a bad idea to have another bank account open by this time so you can transfer your funds there.)
Lastly, you’ll need to request that your bank closes the account. This process can vary depending on the bank, so make sure to consult with your bank to follow their process.
What should you consider before opening a joint bank account?
Before you open a joint bank account, you should always have an established, trusting relationship with whomever you choose to open the account. Whether it’s a spouse, parent or someone else, you’ll want to agree on what it means to use this account responsibly.
What should you look for in a joint bank account?
Since joint bank accounts operate similarly to individual bank accounts, you’ll want to choose a bank that offers services that fit your financial needs and goals.
For example, if your goal for a joint bank account is saving, it’s wise to choose a bank that has interest rates to your liking. If your plan is to use the joint bank account for immediate expenses, you may want to look for a bank account with digital and mobile checking.
Disclosure: This article is for educational purposes about banking products. It is not intended to provide legal, investment, tax, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should refer to the disclosures financial institutions provide for various products and consult a qualified professional.
