I do ... or an IOU? Beware the pitfalls of joint accounts

If you’re in a serious relationship, you’ve probably talked to your partner about the possibility of getting a joint account to pool your savings and manage your everyday cash – particularly if marriage is on the cards.

But while these accounts can be useful, new research suggests many couples are in the dark about exactly how they work – which, in some cases, could lead to nasty surprises further along the line.

So here’s a guide to how joint accounts can help with your finances – and the pitfalls to watch out for.

How do joint accounts work?

Either person can use the account although, depending on the terms, you both may need to sign when money is withdrawn. Joint accounts allow the account holders to decide between themselves how money held in the account will be used and how any borrowing on it will be paid back.

What are the potential benefits?

They can make it easier for a couple to manage the funds they have coming in and going out every month, in one place. A joint account could also be a useful place to pay bills from. And it may be possible to boost the amount of interest you are earning, by having one larger pot of cash rather than two separate smaller pots.

What could the pitfalls be?

Many people don’t seem to realise that they could potentially be pursued for the full amount of debt run up on a joint account – not just a proportion of it. According to SavvyWoman.co.uk and M&S Bank research, three-quarters of UK adults aren’t aware that each person is liable to pay the entire debt on a joint account. Nearly half (46%) wrongly think that if they split up with a partner and there is a debt on the account, each person is only liable to pay half the debt.

Will having a joint account affect your credit record?

Credit reference firms may create a financial association between both joint account holders – which could be positive if the other person has a good credit history, or problematic if the other joint account holder has a poor record.

So what should you consider before opening a joint account?

It’s vital to make sure you understand all the terms and conditions. SavvyWoman and M&S Bank’s survey found that more than four in 10 (42.3%) people who had a joint account with their partner didn’t fully read the terms and conditions.

It’s not exactly romantic to think about, but consider what would happen if you split up.

If you’ve got doubts about how your partner may use the joint account, it’s all the more important to think carefully about whether it is the right option.

UK Finance, which represents banks and other firms, says that while joint accounts offer a useful service, as with any product, it is important customers fully understand the terms and conditions before they sign up.