A joint account is essentially a shared bank account between two or more persons, with most banks permitting up to four joint account holders for a single joint account. It has various advantages, one of which is that it provides simple access to money via debit cards and internet banking. It also streamlines bill payments and assists with spending.
Financial experts advise that a couple can have three accounts. Each spouse has their own separate account from which they get their income, and then they send a predefined amount to the joint account on a regular basis. The joint account is intended to cover shared expenditures such as rent, utilities, food, and entertainment. Joint account can also be used to save money collectively for emergencies, vacations, or other long-term goals. Individual accounts allow for independent spending and savings without the need to contact the partner every time. It is critical to trust one another while putting funds into a joint account, as all account holders have equal rights and can shut the account if necessary.
Overall, opening a joint account may help couples manage their finances, create trust, and collaborate on common financial goals. You can create a joint account with your parent, spouse, sibling, kid, or even your business partner.
Types of joint accounts:
When you create a joint account at a bank, there are a few things you should know. Each account holder has the authority to deposit, withdraw, and supervise the funds in the account. Even if one individual has more authority over the account, all account holders have equal access to the funds once put in. It’s also critical to believe the other account holder since anyone of them can shut the joint account if they choose to. This implies that when you deposit your money into a joint account, you must trust that the other account holder will manage it wisely.
The account holders can select how to run a joint account. There are several options to pick from:
Joint – any activity in the account must be authorized and confirmed by all account holders. If one of the account holders passes away, the bank will cancel the account and transfer the money to the survivor.
Joint or survivor – every single transaction in the account must be approved and signed by all account holders. But if one of the account holders dies, the survivor may continue to use the account.
Either or survivor – If there are two account holders, anyone of them can handle the account. If one of the account holders dies, the survivor will get all of the balance and its interest.
Former or survivor – In this instance, just one individual, the former, can use the account while alive. Upon their death, the survivor may take over the control of the account. But if the survivor dies before the former, the account will be maintained completely by the former, and the survivor’s legal guardian will not be able to access the account.
Anyone or survivor – If there are more than two account holders, any one of them can use the account. If one of the account holders dies, the remaining amount and interest will be distributed to the surviving account holders. These requirements may be amended with the consent of all the account holders. In addition, if someone wishes to authorize another person to run the account on their behalf, they can issue the bank a mandate or power of attorney. Fixed-term deposits can be instructed to be closed or renew when they reach maturity.
Advantages and Disadvantages:
Joint accounts present advantages and downsides as well. The benefit of a joint account is the simplicity with which money may be accessed when needed. It also helps couples manage their cash flows more effectively when costs have to be planned together. When organizing their finances, couples might consider opening a joint account to manage costs such as loans, EMIs, bill payments, and so on. Even NRIs can now register a joint account with a local Indian.
The main drawback of a joint account is the credibility element. If one of your joint account counterparts fails on a loan or engages in unlawful actions that result in the joint account being seized, you may be exposed to lawsuit and possibly financial distress. The other drawback (to some extent, although not always) is the complexities associated with income tax filing and divorce. It will be difficult to locate a money flow for tax reasons from a joint account.
But with the recent advent of the online banking and digital transactions in all the payments and expenses, we can easily have a track of all the inflow and outflow from an account, and hence joint accounts can be more of an advantage than a disadvantage.
