Joint accounts offer a great way to manage and simplify your household finances, and as well as other unique benefits.
What is a joint bank account?
Joint accounts are current accounts held in the name of multiple people. Typically, those opening open joint accounts are married or cohabiting, but they are not exclusive to people living together. In fact, assuming all parties consent, you're free to open a joint account with whomever you choose. However, as with all credit-based financial products (including bank accounts with overdrafts), joint accounts can affect individuals' perceived and actual financial well-being. It is, therefore, wise to understand the risks and gain a good understanding of the financial situation of anyone you wish to open a joint account with before applying, as it may be that a formal association impacts both parties' credit ratings and future borrowing prospects.
Who are joint accounts designed for?
Joints accounts have traditionally been used by married or cohabiting couples to manage household finances. In fact, the majority of joint accounts are still held for this purpose. However, this is not their sole clientele. Many students or others sharing a property also use joint accounts to simplify their finances. This can be an excellent way to minimise the effort required to pay monthly bills, but it is not without risk. A joint account means collective responsibility, so you should only apply for a joint account with individuals in whom you have a great deal of confidence.
Advantages of joint accounts
They make it easy to pay collective expenses from a single source
They enable people with shared expenses to minimise the management of their banking, by sharing account management responsibilities
They can help foster transparency within relationships, as each party can see their collective spend/savings
They enable those opting for accounts with monthly fees to minimise charges, while enjoying the benefits individuals pay for alone
Joint account holders’ individual FSCS protections are not affected, as the protection limit of £85,000 is per account holder, rather than per bank account
Joint accounts help establish evidence of a joint interest in a property in the event of a relationship breaking down. If a property has been purchased in one person’s name, perhaps because the other individual's credit rating is too poor to secure a mortgage in both names, and all bills are paid from that person's account, it can be difficult to establish a joint interest in the property if the parties separate. However, having a joint account (from which the mortgage/household bills are paid) means that the courts can quickly establish that the parties have a collective financial interest in the property (rather than one simply being a tenant).
Disadvantages of joint accounts
Joint accounts link people financially, meaning they are co-scored for future credit applications together. Because of this association, you should be careful not to link with people with poor credit, as their bad credit score will bring yours down too.
Joint account holders are liable for all debts collectively incurred. In theory, this means both parties are equally liable for debts, regardless of who incurred them, which can be unfair. In practice, it can be much worse, as banks tend to chase the individual they think is most likely to pay - so one party can become solely responsible for debts they never incurred.
Most joint accounts, regardless of the actual relationship between the parties, will pass the entire account (and all funds contained in it) to the other account holders absolutely on the death of an account holder. This happens regardless of what has been specified in the will of the deceased, because joint accounts are subject to standard rules of survivorship.
How do I/we apply for a joint account?
Applying for a joint account is slightly different from opening a standard current account. Each account holder needs to fill in their particular section on the application form and provide proof of address (for at least three years prior to an application), identity and UK residency status, as they would for an individual account.
Alongside the standard information, the parties applying will also need to sign a mandate which sets out the actions they can undertake with the account, and whether these actions require one or more account holder’s authorisation.
Can I open a joint account with someone who has bad credit?
Nothing prevents you from applying for a joint bank account with individuals who have had difficulty with debt in the past, but there are practical reasons why you might not want to.
Joint accounts link people financially, so if one individual has had debt or financial difficulties in the past, this will affect the credit rating of the person, or people, with whom they share the account, as they are 'co-scored'.
Indeed it is often the case that, although the individual(s) with poorer credit receives a modest boost in their ability to borrow, those with better credit scores find their credit options and collective ability to obtain credit decline. For this reason, it is best practice to check the credit records of those you intend to apply with, and seriously consider the consequences, before you make an application.
What happens if joint account holders fall out?
If the relationship between account holders irrevocably breaks down, the mandate can be cancelled. This freezes the account so none of the account holders can withdraw money.
The bank can, however, agree to release the balance once everyone agrees on how the balance should be divided. If the parties cannot reach an agreement, the only option may be to let the courts decide. It is also worth noting that the courts look at joint accounts differently, and the ruling will depend on your relationship with other fellow account holders, as well as where you live (England, Northern Ireland, Scotland or Wales).
What happens to my joint account deposit if my bank fails?
If your bank or building society goes bust, then like any other account, joint accounts are protected by the Financial Services Compensation Scheme (FSCS). Under this government backed scheme, each account holder can claim up to £85,000 of money lost in a failed bank or building society.
Alternatives to joint bank accounts
While joint accounts are often the natural choice for people wanting a shared account, there are alternative products which can be equally useful, if not better.
Prepaid cards often issue cardholders with an account number and sort code so that they can be used as de facto bank accounts. Although these products often charge a monthly fee, they do not offer a credit line and are therefore useful for people who do not want to be financially associated with someone with bad credit but still require an account to pay joint bills.
However, although prepaid accounts can offer a useful alternative, they are not a suitable place to deposit high amounts. This is because they offer no FSCS protection, so, in the unlikely event that the prepaid provider becomes insolvent, you could, at least theoretically, lose your entire saved balance.
No, assuming you are meeting the minimum monthly deposit requirements of both accounts, you can keep both open. Many people use this approach to get the best of both worlds. They can pay and save collectively while maintaining some privacy over their financial affairs. For example, it can be very frustrating if your partner spots a transaction in the joint account for a surprise gift!
Yes, in most instances you will be able to open a joint account online. Most banks provide a separate application form for this, but it is broadly the same as an individual account application form, with additional space for the other applicant.
Yes, assuming you have completed the transfer correctly, the seven-day switch guarantee applies. Of course, this works best with an established joint bank account, which already has direct debits and standing orders arranged. If you are pooling two separate individual accounts, you will need to transfer your direct debits/standing orders yourself.
Assuming your joint account offers debit cards (and most do), you will all receive a debit card. This is useful for joint shopping and paying household bills (if you don't use direct debits). However, it requires a good level of trust by both parties.
No. If you are starting a business, you should investigate a business bank account. Joint accounts are consumer products, and if you are discovered to be using one for businesses purposes, it is likely to be promptly closed.
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