The Benefits and Drawbacks of Joint Bank Accounts

The Benefits and Drawbacks of Joint Bank Accounts

According to a report on 2022 financial literacy in Malaysia, the majority of Malaysians save money to amass their emergency fund reserves. However, the same source also found that 53% of Malaysians believe their EPF savings are insufficient for a comfortable retirement.

To fulfil that purpose, many people living or working together have considered opening a joint bank account, a regular savings account belonging to two people or more. Are you one of them as well? Read on to learn its pros and cons before applying.

Benefits of Joint Bank Accounts

Since you’ll have more money after combining your income with someone else’s in a joint bank account, you can allocate some funds for future investments or emergency cash reserves more effortlessly after paying all the essential bills. At the same time, this flexibility also requires you to be candid about your expenses, thus increasing your accountability to your partner. 

A joint savings account may increase your chances of fulfilling a life milestone that requires more money. More funds in your bank mean you’ll receive lower admin fees and competitive interest rates, giving you access to better banking products and services. You can apply for a loan with a good balance.

Drawbacks of Joint Bank Accounts

Transferring all your money to such a savings account may make maintaining financial privacy challenging, as your partner will know your expenses in detail. For some, it can be a source of conflict about financial disagreements, namely, what to save or spend.

Since a joint account belongs to two people, there’s no denying that both parties will bear the liabilities of one person. Suppose you or your spouse has a massive debt. In that case, it can impact your overall credit score, complicating any financial application and asset allocation in case of a rough breakup or divorce. 

On the other hand, joint bank accounts are also at risk of fraudulent or unauthorised transactions because some banks may require transaction approval from only one of the owners. Consequently, an irresponsible party may misuse the funds.

Factors to Consider Before Opening a Joint Bank Account

Before applying for a joint bank account, you need to gauge how much you and your partner can trust each other with money, especially when compared to each person’s spending habits. Next, you must also know your credit score and financial history, including any unresolved debts or difficulties managing personal finances.

Consider whether the two of you have the same financial goals, such as moving to a bigger house, starting a family, or saving for a comfortable retirement, since a joint account makes it easier to reach your mutual goals together. 

It’s worth noting that each bank has different legal and financial policies on handling joint savings accounts in case of death or separation. Some of them include but are not limited to, transferring all ownership to the living account holder or freezing all assets during disputes.

Tips for Managing Joint Bank Accounts

Although a joint bank account comes with its challenges, there are ways you can minimise a financial management conflict. Start by clearly communicating how much to allocate each month for the savings account and detailing for what purposes both parties can use the bank account. 

If your financial plans have included the previously mentioned two aspects, hold each other accountable by monitoring all transactions regularly to spot any irregular activities. However, opening a joint savings account doesn’t mean you have to compromise your financial privacy. You can keep the remaining funds in your account, but ensure you don’t do this to cover up wasteful spending habits. 

Finally, always plan for unexpected emergencies by saving at least 10% of your income for emergency funds covering no less than six months’ expenses in your joint account.

Applying for a joint bank account is a wise strategy to encourage transparency, communication, and accountability when achieving future milestones with your partner. While it can help you gather more resources quickly and access more lucrative financial services with lower fees, the lack of privacy and risk of fraud due to different spending habits may be a source of conflict. So, should you wish to open one, ensure that you have solid trust in each other, know each other’s financial history, and understand the bank’s policies to your best extent.