Some of life’s biggest milestones include getting married, buying a family home, and welcoming the birth of a child. Not only do they signal deeper commitment as a couple, but they also require deeper financial planning.
At such milestones, you may start debating the merits of opening a joint bank account to manage your finances as a couple. In fact, you may even be required by the bank to open a joint account as part of your mortgage arrangement.
But before you decide to pool your monies together in a joint account, here are some pros and cons of opening a joint account.
In Singapore, there are two main types of joint bank accounts: joint-all and joint-alternate.
Joint-All: Any transaction in the account must be acknowledged by both account holders.
Joint Alternate: Both you and your joint account holder can make transactions such as withdrawals individually. Unlike a Joint-All account, one party can make a transaction independently without requiring the permission or acknowledgement of the other party. You can also be held liable for any borrowing on a joint-alternate account even if the transaction is not made with your knowledge or agreement.
For the purposes of the article, the use of ‘joint account’ will refer to both types interchangeably unless specified.
Pro #1: Contributions To Shared Expenses And Joint Financial Goals
Aside from the signalling that you are ready for a deeper commitment together, there are practical reasons for opening a joint bank account together. One reason is that a joint bank account can streamline a lot of the money management for a couple and/or household.
Couples can make equal contributions or contribute proportionally to their income (or in any other agreed-upon proportion) to a joint bank account. Household expenses such as groceries, food deliveries, household furnishings, and child-rearing can all be paid for using the joint account, making it much easier to keep track of household expenses.
Savings towards joint financial goals such as a housing purchase or children’s education can also be held in a joint bank account. It can be very satisfying to see your joint contributions grow together as you work towards the same goal.
Pro #2: Right Of Survivorship
One major difference between joint and individual bank accounts is the right of survivorship. Similar to joint tenancy for a property, if the account holder passes away, the joint account passes on the surviving account holder. (Note: While this applies for most cases, there can be legal exceptions and the right of survivorship can be contested.)
According to DBS, the bank can release all the remaining account balance to the surviving joint account holder. For a joint-all account, the bank can act if there is written instruction from all surviving joint account holders while for a joint-alt, the bank can act with written instruction from any account holder.
This could be assuring for couples who want to ensure that the household is taken care of even after their passing. Individual bank accounts are counted to the deceased’s estate and would be immediately frozen until the estate settlement. Depending on the size of the estate and whether there is a will, the entire process can take anywhere from a few months to years. If the deceased held most of the household funds in their individual bank accounts, this could lead to cash flow problems for the grieving family.
Pro #3: Optimise For Better Interest Rates And Returns As A Couple
Sharing a joint bank account can also be financially beneficial as the couple can maximise their savings for the best returns. Most high-interest savings account require salary crediting as one of the requirements. Couples with one working spouse can use a joint account to credit their salary and thus fulfil the salary requirement. This “hack” works for couples looking to maximise their DBS Multiplier accounts.
Additionally, most high-interest savings accounts give the best returns past a certain savings threshold. Such thresholds are more achievable if both contribute jointly.
Con #1: Different Savings And Spending Habits
For some couples having a joint account can bring more trouble than bliss. While a joint account can streamline household money management, it can also open areas of conflict when one partner can scrutinise the spending and savings habits of the other partner. Explaining why you spent $200 on a gift for a friend while you skimped on a gift for your sister-in-law may not be the most enjoyable couple activity.
One solution is to maintain separate accounts while having a joint account for pre-agreed household expenses. Such an arrangement allows couples to enjoy the benefits of a joint account while retaining the financial independence of individual personal account.
Con #2: Different Debts And Liabilities
Couples can come together from different backgrounds. Sometimes, this means that your partner may enter the relationship with other obligations, credit history, even debts and liabilities.
For instance, a divorcee may enter a new marriage with the obligation to provide alimony for his previous spouse and child. In this case, drawing from the joint account for this obligation may not be palatable to his new spouse.
Marriage does not affect your individual credit score or credit history. However, opening a joint account would impact the credit score of all account holders. Opening a joint account with a spouse who has a bad history of debt may also not be a good idea unless the spouse is already taking the steps to rehabilitate his or her credit score.
Con #3: Most Accounts Are Optimised For Personal Use
Currently, most of the high-interest savings accounts available on the market are individual accounts. For individuals who have already optimised their personal spending to get the best credit card cashback and bonus interest from savings accounts, opening a joint account can throw these careful optimisations off track.
Some couples may choose to pool their monies together to obtain the best returns using individual bank accounts (which offer the best interest rates). However, there are legal implications of using an individual bank account as a “joint” account. For example, in the case of the account holder’s passing, the individual bank account would be frozen during the probate process. In the unfortunate event of a divorce, the pooled monies would also be hard to separate.
Money matters are often one of top-cited reasons for marital conflict (and important enough to merit an area of academic research). Although some couples do not like discussing money, it is still important to manage this area well as a couple. Every relationship is different and there is no single right solution to couple finances. A joint bank account may be a perfect solution for one couple but a disastrous idea for another couple, so choose a solution that works for your relationship.
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