How joint accounts work
A joint account is very much like a regular chequing account. The difference is that it belongs to two or more people.
Joint accounts aren’t just for couples. While many people opt for a joint account with their partner, it’s also possible to open one with someone else. You could have one with the co-owners of your family cottage, for example.
Generally, all the account holders will have the same rights. They can all deposit and withdraw money and carry out other transactions without permission from the other holders.
Good to know: It’s possible to set up safeguards.
You can opt to require two signatures for cheques and withdrawals. In this case, you wouldn’t be able to have a debit card for the joint account or carry out transactions online. Though this is less convenient, it’s useful if you want to monitor all the money going out of the account.
The benefits of joint accounts
You may find it useful to open a joint account if you share bills with someone else. It’s easier than saving your receipts and trying to split everything afterwards.
You can use it to pay joint expenses, such as:
- Electricity bills
- Mortgage payments or rent
- Family activities
- Family vacations
- Your children’s school supplies
Joint accounts aren’t just a handy way for couples (and others) to manage shared expenses. They’re also a practical tool for saving.
You can use your account to put money aside for a project (home renovations, your wedding, a vacation, etc.)
Your financial institution may require you to have a joint account if you want to buy a home with your partner. This account could be used to make your mortgage payments.
Best practices for managing joint accounts to avoid disputes
Experts often recommend that couples contribute to the joint
account in proportion to their income.
This means that if one partner earns 60% of the household income, they should make 60% of contributions to the joint account. This encourages a more equitable division of shared expenses and reduces the risk of the lower-earning partner being disadvantaged financially.
It’s important for couples to discuss their values and priorities.
To avoid any misunderstandings, they should agree from the outset what the joint account will be used for. Drawing up a budget will give you a clearer picture of the money going into and out of the account.
By following these tips, you can enjoy the financial benefits of living together and reduce the risk of disagreements.
The disadvantages of joint accounts
Because you share ownership of the joint account, you have less control over spending. Trust and solid communication are essential to avoid problems.
In the event of conflict or separation, it’s recommended that you close your joint account quickly.
Good to know for Quebec: In the event of death, the surviving
co-holder or executor may receive the funds according to the
established distribution. For accounts opened before December 8, 2022
- or after, provided the shares for each have not already been
determined - the distribution of shares is presumed to be divided
equally, i.e. 50/50. If the spouses or former spouses holding the
account wish to change this distribution, they will have the
opportunity to do so by completing a declaration at a branch.
In light of this, it’s a good idea to have a personal bank account too. This ensures that you won’t lose access to all your funds at what is already a difficult time.
In the other provinces and territories: Joint accounts include
a right of survivorship. This generally means that the surviving
account holder becomes the sole owner of the account, and the
deceased’s estate doesn’t have access to it. The money that was
shared now belongs to one person.
Opening a joint account with someone in financial difficulties
If your partner has financial problems, sharing a joint account could raise some issues. Here are a few examples:
First off, if your partner has a poor credit score, this can negatively impact your own score. The basic principle is that you share both the rights and the responsibilities over the account.
- If your co-holder uses the account irresponsibly, you will have to deal with the consequences too.
For example, you’ll also be responsible for any fees related to insufficient funds, even if you didn’t carry out the transaction that caused the problem.
- If there’s a line of credit linked to your account, you’ll also be liable for the debt.
You’re responsible even if it was your partner who spent the money.
- Creditors may apply to seize funds in the account to be repaid.
The account may be frozen and a portion of the funds given to the creditor.
In the event of bankruptcy, however, the licensed insolvency trustee will determine the share of the joint account belonging to each co-holder. Only the bankrupt person’s share can be seized.
Factors to consider before opening a joint account
Before you combine your finances with another person, in whole or in part, here are some questions to ask yourself:
- Is your future co-holder trustworthy?
- Do they have any personal problems (issues with drugs or gambling, financial difficulties, etc.) that might lead them to make poor decisions with respect to the joint account?
- What is their financial situation like? How about their credit score?
- Do you feel comfortable with the way joint accounts work and the responsibilities involved?
- Will you be able to check your account statements regularly to spot any irregularities?
There are many ways to manage your finances, and it’s important to find the method that suits you best. If you think that a joint account is right for you, you’ll find all the information you need to open an account here.
Would you like to discuss this with us? Contact your National Bank advisor or your wealth advisor at National Bank Financial. Don't have an advisor?