Is there any reason you should go for a joint account? Are there any advantages of Joint Bank Accounts or it only complicates your finances?
Bank accounts are something we all have and for an individual to have access to one’s own account, the account is in their names. There are however also bank accounts that are not held by single individuals but held jointly. Joint Bank Accounts are pretty common. But are they advisable? If yes, then when? If no, then why? Well, let us find out.
Joint Bank accounts simply mean that more than one person can have access to that bank account and carry out transactions related to the account, either jointly or on behalf. This arrangement is made while you open a bank account with a bank or even at a later stage you can add a name to the account and define the type of Joint Bank Account in India. There are however advantages and disadvantages of Joint Bank Accounts.
Advantages of Joint Bank Accounts:
Joint Bank Accounts offer convenience for the holders if the Joint account mode is ‘either or survivor’, then any one of the holders can carry out the transaction for the other. For instance, if you and your parents are Joint Holders of a bank account and for some reason there is an urgent cheque to be signed but you are out of town or at work and cannot do so, you can always get the cheque written and signed by your parent who is a joint holder and the transaction can go on. Also for making withdrawals or carrying out transactions, Joint Accounts offer convenience. In case of emergencies too, a Joint Account is handy. Situations like hospitalisation, wherein you have to write a cheque to make some payment, but you are the one admitted; a joint account holder can do so on your behalf.
Pooling of Money:
Joint Accounts can often be used as a common pool of money and since the Joint Owners have access to the account, there is accountability involved when it comes to spending that money. The joint owners can make contributions to the account and this can be a great way of saving money as well. For instance, a newly married couple can opt for a joint account, if both are working individuals and have separate salary accounts. They can have Joint Account and make monthly contribution to it, to build a kitty and start joint investments and savings.
Easy Transfer of Rights:
Perhaps the most significant and important Advantage of a Joint Bank Account, is the Transfer of Rights of the account, even if NOT MENTIONED IN A WILL. If you would want your spouse to be able to have exclusive access to your bank account after you are not around, then a joint account would do it automatically, even if you fail to make a will, or mention it in the WILL. In case of Joint Account Holders, the surviving holder automatically gets the access to the Account in case of the others death. Even if a Will mentions that the contributions to the Account be distributed to X, Y, Z; if that account is a Joint Account, then it is solely at the discretion of the Surviving Holder, if he/she/they want to distribute it or not. This is very useful if you would want to safeguard the interest of your spouse, parents, or kids. Make them a joint holder in your account.
Disadvantages of Joint Bank Accounts:
Clubbing of Income from Tax point of View:
One of the main disadvantages of a Joint Account is that there are chances of Clubbing of Income from Tax Point of view, especially in case of Spouse. For instance if you and your wife are the Joint Holders and your income is above the Taxable slab, while that of you wife falls below the taxable slab. Your wife also has an FD, the interest of which is deposited to the Joint account you both hold. Now, the income from interest will be added to the annual income of the person who is the 1st Holder, so in case the first holder is you, then even the interest income of your wife is added to your income and you have to pay tax on that, whereas actually it is your wife’s income and is below the taxable limit. However if the situation is reversed with your wife being the first holder, then the income is not added to your income and you can save some tax legally this way. So the disadvantage is turned to your advantage.
Trust matters a lot for Joint Bank Accounts:
Having Joint account can also lead to rift and trust issues between the holders. This however entirely depends on the mindset and thought process of the individuals involved in the accounts. There could be a case where in one of the joint holders misuses the funds or commits a fraud, withdraws all the money and leaves the other broke. This however depends on the kind of relationship you have with the holder. As I said above, trust matters and there are cases of couples, families and even business partners having joint accounts for decades without any trouble.
No Privacy of Finance if one wishes to:
This is one aspect that is again dependent on your equation with the joint holder. At times when both individuals having the joint account are earning, there is a tendency to have financial independence where no one asks them, why you spent so much, why was this amount withdrawn etc. This cannot exist in case of Joint Accounts. If you and your spouse are joint holders then any transaction is visible to each of you. Thus, it can lead to questions on spending habits and arguments and so on. Imagine a situation, where in you plan to surprise your spouse with an expensive gift and swipe your debit card to make the purchase. The bank statement will show it, so the surprise can be short lived. Also in case where the second holder withdraws cash or swipes the card, the SMS alert is invariably sent only to Mobile Number of the first holder; so much for surprise then!
As far as the pros and cons of Joint Bank Account in India are concerned, the Advantages are pretty significant than the Disadvantages since the disadvantages are purely based on your Trust and Relationship equation with your joint owner. If you are sure of the person with whom you intend to share your bank account with, then there is no reason you shouldn’t opt for a Joint Bank Account in India. The same principles or Joint Ownership are applicable to a lot of other Financial Products as well, like Bank FDs, Mutual Funds, Demat Accounts etc. and the advantages and disadvantages remain pretty much the same.
There are different types of Joint Accounts, which can define the role of the Joint Holders specifically and allow access to the accounts either solely or jointly or only jointly or only if one is no longer around. We shall discuss these in detail in the Next Post.