Couples urged to consider the pros and cons of joint bank accounts
A joint account can help a couple be fiscally responsible but it could harm your credit score, says MoneyMagpie.
Is there anything as romantic as sitting down with your partner and going over your finances... ok, we jest! We would far rather stick to steak and a rom-com for Valentine’s Day.
What we do, however, know is that according to YouGov research “the majority of couples (60 percent) in serious relationships have a joint bank account - but four in 10 (38 percent) do not.”
That means 60 percent of us couples are jumping head-first into financial partnerships. MoneyMagpie is here to set the record straight on what are the pros and cons of financially tying the knot.
What is a joint account?
Joint accounts are most commonly held between trusted partners, such as a spouse living at the same address. However, this doesn’t have to be the case.
Many providers allow joint accounts to be held between non-married partners, relatives, friends, or even flatmates.
The pros of a joint account
We asked MoneyMagpie’s Investment Expert, Karl Talbot, what he views as the pros of a joint account.
1. Added motivation to hit financial goals
“Sharing an account with a trusted partner may give you some much-needed motivation to hit any shared financial goals. This may be particularly useful if you’re saving (or investing) for an important life event or milestone – such as a wedding, house deposit, or for your children’s future.”
2. Gives shared responsibility for regular payments
“Joint savings accounts can be a useful way of sharing financial responsibility for monthly mortgage payments, or other household bills. This may be a big boon for couples where one partner might be considered to be ‘better with money’ than the other.”
3. Can help focus household finances
“When it comes to joint accounts, a shared current account can make it easier to keep an eye on each other’s spending. This can be a positive if you’re both keen to instil financial discipline within your household, though always ensure this is something both partners are happy with.”
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The cons of a joint account
Research shows that while a huge percentage of us in a relationship do have a joint account, a whopping one in eight people have money set aside that they haven’t told their partner about.
This stat from YouGov leads us directly to the cons. Karl Talbot is back to share these:
1. Both partners are equally responsible
“It’s really important that you open a joint account with a trusted person. While this doesn’t have to be your married partner, it’s vital that you don’t just add someone else to your account willy-nilly.
“Remember, with joint accounts BOTH account holders are essentially responsible for any withdrawals. This could be problematic for partners with differing attitudes towards money and spending.”
2. Shared accounts may harm a partner’s credit score
“Another potential drawback of opening a joint bank account is the risk of financially linking to someone with a poorer credit score than yourself.
“Put simply, if you open a joint bank account with someone with a questionable credit score this could impact your own creditworthiness. This, in turn, could harm your chances of being accepted for competitive credit products in the future.
“Do note that this isn’t the case with joint investment or savings accounts as a financial ‘link’ isn’t created between partners for these products.”
3. Things could get messy if you split up
“Sadly, relationships can and do fail. This is why opening a joint account with a partner ultimately carries a risk in this regard.
“As a rule of thumb, if you had a joint account when married, any balances will be split between you and your partner in the event of you breaking up.
“If you aren’t married, then any joint account balances will typically be split by how much each party has contributed to the overall pot.
“Be mindful that the above is a general rule, and things can get more complex depending on where you live in the UK. For more on the ins and outs of dealing with your finances after splitting up, the Government’s Money Helper website is a good place to start.”
Joint accounts: What about tax?
Talbot explains: “Under the normal Personal Savings Allowance (PSA), basic-rate taxpayers can earn £1,000 per year in interest on their savings without having to pay tax on it. (This applies to interest earned from non-ISA accounts).
“Higher-rate taxpayers, meanwhile, can earn £500 per year tax-free, while additional-rate payers don’t get an allowance.
“For joint savings accounts the PSA still applies. This means that if you’re a married couple holding a joint savings account, any interest you earn from the account will be split between you 50:50 for the purposes of calculating your PSA. For unmarried couples, their individual PSA is determined by how much each party has contributed.
“With regards to joint investment accounts, any returns are automatically calculated 50:50 for the purposes of liability for Capital Gains Tax, though you can inform HMRC of an ‘alternative beneficial interest’ if either party wishes to claim a higher proportion of an investment.
To learn more about tax liabilities on joint accounts, speak with a tax professional.”
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