How do joint savings accounts work?
You may be thinking about combining your savings with a partner, friend, or family member. Here we look at how joint savings accounts work, what the benefits are, and how to maximise the interest you can earn.
Key takeaways
All named account holders of a joint account have access to the funds and can deposit or withdraw money.
Joint accounts may earn more interest due to higher balances
Half of the interest is allocated to each account holder and counts toward their Personal Savings Allowance
When you're planning for the future with someone else, whether it's for a wedding, a new home, or just a rainy-day fund, using a joint account can be a smart move.
In this article, we'll explore what a joint savings account is, how it works, and what you need to consider before opening a new account with someone else.
What are joint savings accounts?
A joint savings account is essentially a savings account that is shared by two or more individuals, who are joint-account holders.
Each person named on a joint savings account can put money into the account, and withdraw it.
Joint accounts are a useful way to manage joint finances, and there are lots to choose from.
Why would I need a joint savings account?
Joint savings accounts are ideal if you’re saving towards a shared goal such as a house deposit, home improvements, a new car, a wedding, or just an emergency fund.
They are designed to make it easier for people to save together, and often it’s possible to earn more interest than if the money is kept in sole accounts.
How do joint savings accounts work?
Joint savings accounts work in pretty much the same way as standard savings accounts. Money is deposited and interest is earned.
Depending on the type of account, the interest may be tax free.
Either person named on the account can withdraw money, so before you pool your funds it’s important to make sure you’re comfortable with the access that all account holders will have.
Here are a few key things to consider with joint savings accounts:
The tax implications of a joint savings account are straightforward. The interest is divided equally between the account holders and counts towards their Personal Savings Allowance. This is the case regardless of whether the co-owners are in different tax brackets.
When it comes to protecting your money, joint accounts are protected by the Financial Services Compensation Scheme(FSCS) for up to £85,000 per person (so £170,000).
The FSCS assumes equal ownership of funds, so the protection applies whether one person deposited all the money or if it was split between co-owners.
Disagreements can lead to complications with joint accounts. In such cases, funds can be frozen until both parties reach a resolution. This might even require court intervention, particularly after relationship breakdowns.
The division of funds in a joint savings account can vary based on the relationship between co-owners. Married couples typically see an equal division, while friends and family might divide based on individual contributions.
How joint savings accounts work and considerations
Tax implications
Safety of funds in joint savings accounts
Disagreements between co-owners
Legal protection across relationships
Can you earn more interest with a joint savings account?
One of the main perks of a joint savings account is the potential for earning more interest. Since the balance may be higher than the sums in individual accounts, the interest accrued can be more substantial.
However, it's important to note that half of the interest earned on a joint savings account will be given to each account holder, and then set against their individual Personal Savings Allowance.
Even if you and the account co-owner are in different tax brackets, interest will still be split evenly.
Can I open a joint savings account?
Every savings provider will have its own rules on who can open an account but you will usually need:
To be over 18
Be a UK resident and have a permanent address
Sometimes you might need to have a current account with the bank as well
What do think about before opening a joint savings account
Before you open a joint savings account, it’s important to consider the following:
Do you and your potential co-owner share a similar attitude towards money?
How might opening a joint account affect your relationship, especially if things don't go as planned?
What will you put the money towards?
If the relationship breaks down, what will happen to the money?
Are both partners putting the same a mount of money into the account each month?
Pros and cons of joint savings accounts
Pros:
Combined contributions can help you reach your savings goals faster
You might benefit from higher interest rates due to larger balances
There's an increased sense of accountability and focus on saving. A joint account can make money-management easier
Cons:
Closing the account can be difficult if both parties don't agree
There's a risk of one owner withdrawing funds without the other's consent
Joint ISAs are not an option as they must be held in individual names
If there is a bonus on the account, it might be more beneficial to have two separate accounts
Can you add another person to an existing savings account?
Some banks allow you to add another person to your existing savings account, effectively transforming it from a sole-name savings account to a joint account. This can be more convenient than opening a new account but it depends on the bank's policies and your personal circumstances.
Alternatives to joint savings accounts
If a joint savings account doesn't seem right for you, consider alternatives like:
Combining Lifetime ISAs: If you're saving for your first home, you can combine your Lifetime ISAs for the house deposit, provided neither of you already owns property
Joint current accounts: These can be used for shared expenses and might offer overdraft facilities or interest on balances
Other useful guides
To further your savings knowledge, check out these guides:
What are the rules around direct debits and overdrafts for joint savings accounts?
Arranged overdrafts are a typical feature of joint current accounts but are not available for joint savings accounts. This is because savings accounts are not designed for withdrawals.
Direct debits are not a feature of joint savings accounts either. In fact, regulations stipulate that you cannot set up a direct debit, or standing order, from any kind of savings account.
So if you require a shared account for paying household bills, you'll require a joint current account instead.
Will a joint savings accounts help my credit score?
Opening a joint savings account won't impact your credit history. This is down to the fact that credit reference agencies don't scrutinise savings accounts when determining your credit report.
For that reason, joint savings accounts are not a way to improve your credit score and boost your eligibility for credit cards and loans. But they won't harm it either.
That's in contrast to joint current accounts. If you open one of these with a partner, you're deemed to be linked financially. Which means that a partner's poor credit history could affect your chances of securing credit in future.
Can you use mobile and online banking with a joint savings account?
Yes, you'll be able to manage your joint savings account online or via a mobile banking app, just as you would with any other savings account.
Both account-holders will be able to log into online banking with shared log in details. And just as critically, both can download the provider's app and register on separate on mobile devices, too.
Alternatively, you can manage your joint savings account by telephone banking if you prefer, or by dropping into your bank’s nearest branch.
How do you close joint savings accounts?
When you want to close your account, the balance will be divided between all co-owners. Your provider will usually need this agreed upon in writing by all account co-owners.