Joint savings accounts
A joint savings account can be a great way of pooling your finances together to create a nest egg for big financial goals like a house deposit or home renovation.
But where money’s concerned, a shared financial tie needs careful consideration. Here’s what you need to know about taking on a joint savings account.
A joint savings account can be a great way of pooling your finances together to create a nest egg for big financial goals like a house deposit or home renovation.
But where money’s concerned, a shared financial tie needs careful consideration. Here’s what you need to know about taking on a joint savings account.
What is a joint savings account?
A joint savings account is just the same as a personal savings account. The only difference is that there’s more than one account holder.
While current accounts are more for day-to-day spending, savings accounts are typically used for putting your money aside and saving towards bigger financial goals like a deposit for a house, school fees, home renovations and holidays.
The idea is to deposit money in an account, and rather than spend it, you’ll be paid interest by the bank, so the amount in the account should slowly build up.
Who are joint savings accounts suitable for?
Most people who open a joint savings account are couples in a relationship, married or living together. But a joint savings account could also work for housemates sharing costs, or family members who live together, as long as everyone gets on and trusts each other.
Do we have to live together to open a joint savings account?
It can depend on your provider, but in most cases, you can still open a joint savings account, even if you live at different addresses.
Can more than two people open a joint savings account?
Again, it depends on the provider. Some will allow more than two people to be named on the account, while others will only allow two account holders to share a joint account.
Am I eligible for a joint savings account?
To apply for a joint savings account, both you and the joint applicant must be UK residents and have proof of address. You’ll need to be over 16, and in some cases, over 18 to apply.
Some banks will want at least one of you to have an existing current account, or to open one with them before they’ll let you open a savings account.
What types of joint savings accounts are there?
As with single savings accounts, there are different types of joint savings accounts available. The main ones are:
- Instant access savings account – you can draw money out whenever you need it, which could be handy in an emergency.
- Fixed rate savings account – gives you a fixed interest rate for a certain length of time. Typically, it offers a higher Annual Equivalent Rate (AER, the interest rate for savings accounts) than an instant access account. A good option if you don’t need access your savings for a while.
- Regular savings account – you’ll need to pay a certain amount of money in each month, then interest is usually paid yearly. Regular savings accounts typically offer higher interest rates than instant access and fixed rate accounts. But those with the best interest rates are often only available to existing customers with a current account at the same bank.
- Notice account – these can offer better rates than other types of joint savings accounts. But you need to give notice before you can take money out. This could vary between 30-120 days depending on the provider.
Can I get a joint ISA?
Unfortunately, you can’t get a joint cash ISA account. An ISA is an Individual Savings Account which means the tax-free savings allowance is only for one individual, and the account can only be held in one name.
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DID YOU KNOW? If you and your partner are on a low income, the Government’s Help to Save account could help you start saving. But you can’t share an account. Instead, you’ll need to apply separately. |
Do I have to pay tax on a joint savings account?
It depends on how much, if anything, you earn. The personal savings allowance, introduced in April 2016, lets you earn interest up to £1,000 without paying tax, if you’re a basic rate taxpayer (20%). If you’re a higher-rate taxpayer (40%), you can earn tax-free interest up to £500.
For example:
If you earn £20,000 a year and earn £800 interest a year from your savings account, you won’t need to pay tax on it.
If you earn £20,000 a year and earn £1,200 from your savings account, you won’t pay tax on the interest up to £1,000, but you’ll be charged the basic tax rate (20%) on the £200.
If you and your partner are in different tax bands, Her Majesty’s Revenue and Customs (HMRC) will split the interest between you, and take into account your individual personal savings allowance.
If, for example, the joint savings account is held by a couple and one person is a stay-at-home parent with no income, you might be eligible to receive up to £5,000 of interest, without being required to pay tax on it (£5,000 is your starting rate for savings).
- If your other income is £17,570 or more, you won’t be eligible for the starting rate for savings.
- If your other income is less than £17,570, your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.
So, if you’re earning under £17,570, how would this work in practice? Suppose you’re earning £15,000 a year and you get £150 a year in interest on your savings.
Your Personal Allowance is £12,570. It’s used up by the first £12,570 of your wages.
The remaining £2,430 of your wages (£15,000 minus £12,570) reduces your starting rate for savings by £2,430.
Your remaining starting rate for savings is £2,570 (£5,000 minus £2,430). This means you won’t have to pay any tax on your £150 savings interest as it’s under the limit at which you would need to start paying.
But even the highest interest savings accounts don’t earn all that much interest, so many people won’t need to pay tax on their savings at all.
Will we both earn interest on a joint savings account?
Nope, sadly not. The rate of interest you earn will be exactly the same as a sole savings account. It’s one rate, per account, not per person.
Will a joint savings account affect my credit score?
No. Savings aren’t recorded on your credit report, so they won’t impact your score, although it’s possible that potential lenders might ask you about them.
How to open a joint savings account
To open a joint savings account, you’ll both need to provide proof of address and identification.
Some banks only offer joint savings accounts if at least one of you already has a current account with them. Others may want you to open an account in a sole name, then add another person once the account is active.
How to close a joint savings account
If you and your partner split up and decide to go your separate ways, you’ll probably want to close your joint savings account.
If you both agree to close the account and divide the funds, it should be a pretty straightforward procedure. The bank will need an agreement from you both in writing.
If one of you refuses to close the account or you disagree on how the funds should be split, you can ask for the account to be frozen. Neither of you will then be able to touch the money until a solution is found – either by coming to an agreement yourselves, through mediation or through the courts.
What happens if one of us dies?
If one of the account holders dies, the bank will ask for a copy of the death certificate. The account can then be closed or changed from a joint account to a sole account.
Are our savings protected if the bank goes bust?
If your bank goes bust, your money will be protected under the Financial Services Compensation Scheme (FSCS). All UK banks and building societies are signed up to the protection scheme.
It means that savings up to £85,000 per customer are protected. In the case of a joint savings account, the amount protected would be up to £170,000. If your bank goes bust, the FSCS will compensate you automatically.
Is a joint savings account a good idea?
A joint savings account is a big financial tie, so you want to be sure you both share the same responsible attitude to your money. Remember, if you both have the same access to the account, either one of you can withdraw funds without having to consult the other person. It might be possible to set up an arrangement with the bank that requires both of you to authorise any withdrawals, but not all banks or building societies offer this option.
A way to protect the money you earn would be to put your salary into a personal account, then transfer a set amount each month into your joint savings account. It’s a good idea to put 20% of your salary into your savings pot.
Ultimately, a joint savings account needs trust and commitment from both of you. If you have any doubts about the way your partner handles money, you might be better simply sticking with your separate accounts.
What should I look out for when comparing joint savings accounts?
The first thing you’ll probably consider is the interest you’ll earn – that’s really the main purpose of a savings account. When savings accounts are advertised, the AER is shown. This shows how much you’ll earn from the account over a year. You can use it to compare accounts.
You’ll also want to consider:
- Access – do you want to be able to take out your money whenever you want, or are you happy to leave it for a certain length of time?
- Deposits – some accounts might have restrictions on the maximum or minimum amount you can deposit.
- Withdrawals – some accounts might limit the amount of withdrawals you can make each year.
- Eligibility – some banks only offer joint savings accounts to existing or new current account customers.
