The benefits and pitfalls of having a joint bank account
A shared bank account can be a sensible step for couples, but there are potential issues to consider. By Vicky Shaw.
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.Whether it’s to pool money for household bills or for joining up on savings, having a shared bank account can make money management simpler for couples.
Placing a large sum of money into one account may also help couples gain access to a higher savings rate.
Alice Haine, personal finance analyst at investment platform Bestinvest (bestinvest.co.uk), says: “A joint account can help to build trust and deepen ties in a relationship, because the couple shares the burden of everyday life, and there is transparency over how and where money is spent.”
But she warns that things can get tricky sometimes, particularly if two people have different attitudes to money – perhaps if one of you is a spender and the other a saver.
Haine continues: “Similarly, if one person earns significantly more than the other, and feels that more of their money is being spent, this may cause resentment or conflict.
“One way to get around this is to only have a joint account for shared bills, with each party putting in an equal amount per month. Alternatively, a 60-40 split may work for some couples, if one person earns a larger salary than the other,” she adds.
“Each party can then retain their personal accounts for their own expenditure, giving them the freedom to spend their money as they choose.”
In the event that a bank or building society goes bust, the maximum compensation limit for a joint account is twice that of an account held by one person.
The Financial Services Compensation Scheme (FSCS, fscs.org.uk) limit is up to £85,000 per eligible person, per bank, building society or credit union, but up to £170,000 for joint accounts for UK-authorised providers.
Haine says: “There is also added protection with a joint account should the worst happen, and one of the account holders dies unexpectedly.
“Rather than being denied access to the funds held in the account, the other person can still withdraw money, as opposed to waiting until the probate process is complete.”
Haine says it’s also worth considering the tax implications of joint accounts.
“Under the annual personal savings allowance, basic rate taxpayers can receive up to £1,000 of tax-free interest each year, but this is reduced to £500 for those subject to the 40% higher rate. The highest earners, who pay income tax at 45%, will receive no tax-free interest,” she says.
“The combination of higher interest rates and frozen or lower thresholds on income tax, means increasing numbers of taxpayers are now more at risk of a reduced personal savings allowance – or losing it altogether.
“There are other pitfalls to having a joint account, so it’s important that relationships are on a secure footing before a shared account is even considered,” Haine adds.
“If one party suddenly withdraws or spends a large sum, there is little legal ground to recover the money, as it is a joint account and each person has the necessary permission to access the cash.
“Another pitfall of a joint account occurs if one person’s excessive spending puts the account into an overdraft – a very expensive way to borrow. In this instance, both parties are liable for the debt, no matter who spent the money.
“This is because a joint account creates a financial connection between the account holders, something that is also a consideration when lenders assess an application for credit.
“This would not work in someone’s favour if they have a stellar credit record, but their partner was financially irresponsible, as their creditworthiness could be dragged down. This, in turn, can affect their ability to secure a credit card or mortgage at a good rate.”
The situation can get even messier if the couple separates, Haine cautions.
Not only will the couple need to divide up any remaining cash in the account, but they’ll also have to make sure any debts are dealt with.
Haine adds: “If a couple splits up and there is still an overdraft on the account, that debt must be cleared before the account can be closed.
“Also, couples must double check that an account has been properly closed to prevent their ex taking money that isn’t theirs, or running up debt.”