What To Know About Opening A Joint Account At A Credit Union

Friday, September 3rd, 2021
benefits of a credit union membership

A joint bank account allows two people to have equal access to one set of funds. Anyone can open this type of account including friends, family, and spouses. Before opening one at a credit union, there are some things you should know.

There are a lot of pros, but also some cons

No matter who the owners of a joint bank account are, they must equally deal with any drawbacks or risks there could be. But, they will also enjoy the benefits. Here are the pros and cons of having a joint account.

The pros

One of the greatest advantages of having a joint account is that both owners have equal access to the money. This makes it much easier and faster to share funds. In situations where one owner is not able to access funds (if they are incapacitated), this can be a great benefit.

Paying bills and making payments is easier as well since both people will have access to the funds and history and can budget separately. Finally, each owner is ensured up to $250,000 through the NCUA.

The cons

The cons of having a joint account at your credit union depend on your situation. For example, if you choose to open one with someone you know is unreliable, they could take all of the money and close the account. This could result in a civil lawsuit. Here are some other risks to keep in mind.

  • Liability: If one owner overdrafts the account, that liability is both owners.
  • Limited asset protection: Depending on the terms of the account, if one owner has debt, it may be seized. This means that YOUR investment into the account could be seized too.
  • Reduced benefits eligibility: For some joint owners, like college students, their assets can be inflated if you add more money to the account. This could hurt their access to financial aid. In the same way, elderly co-owners who rely on Medicaid for long-term care could be affected.
  • Gift taxes: In some cases, a withdrawal of more than $14,000/year (except from a spouse) can count as a gift to a co-owner. This means the gift tax would apply.
  • Divorce: If you have a joint account with your spouse and you get a divorce, it will stay open to both of you until it is closed. If a co-owner is going through a divorce, THEY may have access to the funds as well through legal measures.

Right of survivorship

This is a feature unique to joint accounts at both banks and credit unions. It can be a benefit and drawback, depending on the situation. Essentially, this feature is an option on joint accounts that allows the full balance to go to one owner if the other passes away.

The benefit of this feature is that it will bypass probate in the event of one owner’s death. Probate can be expensive and time-consuming, which is not something anyone needs after losing a loved one. Having the right of survivorship on a joint account allows those funds to be accessed when they are needed, without extra hassle.

The risk is that if the account has the right of survivorship, it trumps any actions in your will. If you intend to leave that money to an heir or beneficiary, make sure your joint account does not have this feature.

Types of joint accounts

If you plan on opening a joint account at your local credit union, be sure to ask about subtypes. They each will have different features and functions. Here are just some of the types you should know about.

  • Joint Tenants With Rights Of Survivorship Account: This is the most common. The information above describes this type of joint account.
  • Joint Tenants In Common Account: Business partners and domestic partners usually choose this type, but it is available to anyone. This type IS subject to probate.
  • Tenants By The Entirety Account: This type is only available to married couples, domestic partners, and parties in a civil union. Both owners must sign off on every transaction.
  • Convenience Account: This type is available to everyone, but is typically used by elderly/incapacitated persons that need the help of an “agent” to act on their behalf. There are some important differences to note when making this type of joint account. It is typically subject to probate unless otherwise stated and creditors may not be able to get the money in some cases.

Tips for managing your joint bank account

Although this type of account is convenient if you don’t know how to manage it properly, things could become confusing. Follow these tips to help!

  1. Choose one person to do the budgeting. This will help you stay on track. The owner who handles paying bills is the best choice to handle budgeting.
  2. Always have enough in the account. As long as both owners agree that there is enough money available to pay for bills and other necessities, there shouldn’t be a problem with spending.
  3. Be honest. Both owners of a joint account should be open and honest with each other. After all, you are sharing all of the funds.
  4. Open the right type of joint account. This will help you stop issues down the line that can easily be prevented.

Looking to open a joint account?

If you would like to learn more about joint accounts, contact Borger Federal Credit Union today! You can reach us at (806) 273-9506 or Contact Us by email to learn more about the benefits of Membership.