By Aly J. YaleIndividual vs. Joint Savings Accounts: What’s the Difference?
Savings accounts allow you to stow away cash and earn interest on those funds over time. But the right type of savings account depends on your goals and personal situation.
An individual savings account is an option if you want to own and manage your account all on your own. A joint savings account, on the other hand, could be a better choice if you want to share account access with one or more other people—such as a spouse or aging parent.
Here's what to know about these two savings account options before opening yours:
| Individual Savings Accounts | Joint Savings Accounts | |
|---|---|---|
| Ownership | Owned by one person | Owned by two or more people |
| Access | Only you have access to your account and its funds | All account holders have full access to the account and its funds |
| Interest rates | Interest rates may be lower, as your deposit size may be smaller | Interest rates may be higher, as you can make larger deposits |
| Insurance | $250,000 in total coverage per institution | $250,000 per account holder per institution |
| Taxation | Interest is taxed | Interest is taxed; how much each account holder will pay depends on local law |
What Is an Individual Savings Account?
An individual savings account is one that is owned by just one person. That person is the sole account holder and is the only person who can deposit or withdraw funds.
Individual savings accounts come with up to $250,000 in insurance coverage per financial institution from the Federal Deposit Insurance Corp. (FDIC) for banks and the National Credit Union Administration (NCUA) for credit unions. This insurance protects your money in case your bank or credit union fails. You pay taxes on any interest earned in these accounts based on your personal tax bracket.
Learn more: What Are Bank Account Ownership Categories?
Pros and Cons of Individual Savings Accounts
Individual savings accounts can be a wise choice for some consumers, but they have drawbacks too. Here are the pros and cons to consider before opening an individual savings account:
Pros
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Only you have access to your money. No other parties can access your account. You are the only one who will be able to view, deposit or withdraw funds.
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You retain privacy and can spend your money as you'd like. Only you can see transactions. This is ideal if you want to purchase items with discretion or just keep your financial activity private.
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You aren't vulnerable to others' mistakes. When you share an account, you could face serious consequences if a fellow account holder mismanages their money or debts. An individual account protects you from this risk.
Cons
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You will have less insurance coverage. The FDIC and NCUA insure up to $250,000 in deposits per account owner, so opening an individual account will mean a lower level of total coverage on your account. You may need to open a second account if you plan to deposit more than $250,000.
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Budgeting may be more challenging with your partner. If you and a partner have shared savings goals or split the costs of living expenses, keeping individual accounts may make these efforts more challenging.
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You may get a lower interest rate or have trouble reaching balance requirements. Some savings accounts have balance requirements you must meet. Others may offer higher interest rates for larger deposits, which can be hard to reach on your own.
What Is a Joint Savings Account?
A joint savings account is a type of savings account you share with another person (or persons). You might open one to save for a collective goal—like a family vacation—or stow away money for household emergencies if you live together.
With a joint savings account, both people enjoy the same level of account access—and the funds within it—and neither needs permission from the other party to deposit or withdraw money.
Joint savings accounts come with $250,000 in FDIC or NCUA insurance coverage per account holder. You will owe taxes on the interest earned in a joint account, but the division of those taxes depends on local law.
Learn more: Do You Get Taxed on Your Savings Account?
Pros and Cons of Joint Savings Accounts
If you have a spouse, live with a partner or roommate or are supporting an aging parent or other loved one, a joint savings account may seem like a good option. Here are the pros and cons to consider before opening one:
Pros
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It may make it easier to handle shared expenses. If you share expenses with someone or are saving for the same goal—a child's education, for instance—having a joint savings account could make the process easier.
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You can better supervise spending. Joint accounts allow all owners to view activity on the account. This can be helpful if you need to supervise the spending and saving habits of someone in your household.
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You can more easily reach balance minimums and get higher interest rates. Some savings accounts have minimum balance requirements or even offer higher interest rates for larger deposits. These may be easier to meet with additional account holders contributing.
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You'll have more insurance coverage. On a joint account owned by two people, you would enjoy coverage of up to $500,000 in deposits (versus just $250,000 on an individual account).
Cons
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The other person has full access to your money. With a joint account, all account holders can deposit and withdraw cash without permission from others. This means your loved one(s) can use the funds in your account—even if they weren't the ones to deposit them.
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It can get complicated if you go your separate ways. If you and your joint account holder decide to dissolve your relationship, you would need to separate your finances, too. Having a joint account could make this difficult.
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You'll have no spending privacy. A joint account allows all account holders to see activity on the account. This might not be ideal if you want to keep certain purchases to yourself.
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It could have repercussions if the joint account holder isn't responsible. If your fellow account holder mismanages your joint account, you could lose the ability to open future bank accounts. If they fail to repay their debts, your funds could even be seized by the IRS.
Individual vs. Joint Savings Accounts
The big difference between individual and joint savings accounts is who owns them. With an individual account, there is only one account holder, and they are the only person who can deposit funds, withdraw money or monitor transactions on the account.
A joint account is owned by multiple people, with all account holders having the same rights. They can deposit and withdraw money and view all account activity. Joint accounts also come with more insurance coverage. This can allow you to get more protection than you would on an individual account.
Should You Get an Individual or Joint Savings Account?
The right type of savings account will depend on your personal situation and your financial goals. Here's what to think about before deciding whether an individual or joint savings account is best for you.
When to Consider Getting an Individual Savings Account
An individual savings account might be the best option for you if:
- You want to maintain financial independence. An individual account can only be used and viewed by you. It can be a good choice if you want to save for individual goals or keep your finances separate from a partner or loved one.
- You're in a new or unstable relationship. Sharing a bank account requires trust, as any additional account holders will have full access to your money. If you don't know your partner well or are unsure of their financial habits, keeping your savings separate for the time being may be wise.
- You want to safeguard your finances. A joint account makes you vulnerable to creditors and even the IRS if another account holder mismanages their finances. Having an individual account can help you better protect your money.
- You're uncomfortable talking about money. Having a joint account requires good communication and frank financial conversations with your fellow account holders. With an individual account, you won't need to discuss your financial moves with anyone.
- Your partner is irresponsible with money. If you fear your partner or spouse may be tempted to spend your savings irresponsibly, keeping separate accounts might be advised.
Choosing an individual account doesn't necessarily mean you and a loved one can't coordinate finances. You could also link your accounts, which would allow you to send money back and forth as needed. This might be helpful if you live together or share certain expenses.
Learn more: How to Link Your Bank Accounts
When to Consider Getting a Joint Savings Account
A joint savings account may be a good choice if:
- You're a couple with shared financial goals. Sharing a savings account can allow you to work together to achieve and monitor progress toward shared goals—like funding a family vacation or a child's college education.
- You want to streamline financial management. Having one shared account between you can help streamline your savings efforts, giving you both the ability to contribute to the account and monitor transactions and progress.
- You want to reach high balance or interest rate minimums. Some accounts require high balances or will offer higher interest rates for larger deposits. Having a second person on your account may make it easier to achieve these.
- You want more insurance coverage. Since the FDIC and NCUA provide $250,000 in insurance coverage per depositor, adding another account holder can increase your coverage amount.
- You need to supervise someone's spending. A joint account allows all account holders to monitor transaction activity. This might be a good idea if you need to supervise a child or aging parent's spending or saving, for example.
- You're co-parenting. If you're separated from your child's other parent, a joint account may make it easier cover child-rearing expenses. Both of you can then contribute to the account and use the funds as needed for the child.
Generally, it's best to only consider opening a joint account with your spouse, child or parent. If sharing with a child, make sure you consider other kid-friendly savings options too. If you've decided a joint savings account is best for you, you can add someone to your existing account, combine accounts or open a new savings account together.
Learn more: Can Unmarried Couples Have a Joint Bank Account?
The Bottom Line
Choosing whether to open an individual or joint savings account depends on your personal situation, money management preferences and savings needs. In either case, always compare savings account rates and fees to ensure you're earning the most interest possible.
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