If you’ve ever planned a weekend getaway with friends, you’re likely familiar with the giddy anticipation that builds as the group chat debates dinner ideas, lodging options and potential activities.
Of course, you may also recall the challenges that can arise when dividing up the costs of the trip. Splitting bills. Going uncomfortably over your budget. Chasing down pals who haven’t paid.
Travelers generally address the costs in one of several ways. Some take the relaxed “it-will-work-itself-out” approach of trading off covering meals and expenses. Others go full CPA with a spreadsheet that adjusts for inflation and who ate the extra piece of bruschetta. Most do their best to calculate the costs fairly, send Venmo payments to settle up and get back to enjoying the trip.
But some take a different tack: They open a bank account together ahead of time, with each member of the group making regular deposits to build up the vacation fund. Once it’s time to travel, the group knows its budget and simply pays for all expenses with the money everyone saved up together. Earlier this year, a TikTok video describing how an Australian friend group shares a bank account for annual trips made the rounds, sparking conversation about the pros and cons of this strategy.
Is this actually a good idea? And is there a right and wrong way to go about it?
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Bank officials say they occasionally see friend groups open joint bank accounts, typically for vacations, special events or shared projects. They also see roommates do it to cover rent, bills and housing expenses.
“Setting up a joint account can work if the purpose for the joint account is clear,” says Christina Lamar, vice president of member services at Copper State Credit Union in Arizona. “There has to be a lot of trust because anybody (in the group) has access to that account.”
But Lamar and other financial experts caution that sharing a bank account with your friends comes with all sorts of risks, many of which probably outweigh the convenience that it might provide. They say you could lose money, fracture your friendships and inflict lasting damage to your financial profile.
“Honestly, the risk is just too great and the return too low,” says Michael McAuliffe, CEO and president of Family Credit Management. “This isn’t about whether or not you trust your friends; it’s about giving someone the power to affect your financial life, even by accident.”
Why You Might Not Want to Share a Bank Account With Your Friends
Unauthorized Spending
Perhaps the most obvious risk to sharing a bank account is that others can spend or withdraw money without your approval.
“Anyone that is a joint owner has the ability to withdraw all of the money at any time,” says Chad Gammon, a certified financial planner and owner of Custom Fit Financial.
Although it may be unlikely that someone in your tightknit friend group is going to take the money and run, problems could arise if there’s a disagreement on how to spend the funds. If you get outvoted, will your friends simply move forward and authorize a transaction? Experts say if you’re going to open a joint account, these types of questions should be dealt with in advance.
Shared Liability
While a true joint account — where everyone is an owner on the account — may sound like a safer option because it gives everyone equal control, experts say this opens you up to far greater risk than if you were to simply let one friend own the account.
“The biggest dangers stem from the idea of ‘joint and several liability,'” says Brandon Shephard, senior financial advisor at Ally Financial. “It means that each person on the account is individually responsible for the entire balance and any debts or overdrafts incurred, regardless of who spent the money. If one friend overdraws the account, the others are equally liable for covering it. If one friend has a judgment against them, creditors could potentially seize funds from the joint account.”
This can inflict long-lasting harm to your finances. For example, overdrafts could negatively impact your ChexSystems report, which tracks your banking history and is used by many banks when determining whether to allow you to open future accounts.
Fractured Friendships
Beyond the financial risks, shared accounts could also put strain on your friendships, even if everyone involved has the best intentions.
“There’s also a major relationship risk when opening a joint account with friends,” says Shephard. “Money issues are a leading cause of conflict, and disagreements over spending, contribution amounts or unauthorized withdrawals can quickly cause friction in friendships.”
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Joint Bank Accounts: How to Set Them Up to Minimize Risk
While financial experts generally advise friends against opening joint accounts, they say there are steps you can take to increase your chances of running it smoothly and decrease your overall risk.
Agree to Purpose, Goals and Timeline Up Front
Before you open the account, it’s important to clearly outline as many of the details as possible, preferably in writing. Determine how much each person will deposit and how frequently deposits will be made. Make sure everyone agrees how and when the money will be spent. You’ll also want to anticipate any potential issues that could crop up. For example, what happens if one friend decides they want out of the arrangement?
“It’s so important to have an honest conversation up front,” says Chris Powell, head of deposits at Citizens Bank. “How you’ll use the account, what you each expect and what happens if something goes wrong. Clear expectations are the best guardrail you can put in place before you ever deposit a dollar.”
Choose the Right Type of Account
If you’re creating a fund for one particular event, it may be best to select a high-yield savings account or money market account that earns interest and perhaps isn’t as easily accessible for spending as a checking account might be. However, a checking account may be better for roommates who are using it to pay monthly bills, such as utilities and rent.
Set Up Real-Time Alerts
Powell says all owners of a joint account should set up real-time alerts so they’re notified of any changes or transactions that take place.
“Transparency is everything when you’re sharing an account,” says Powell. “You never want to open the app and be surprised by a transaction. Alerts give you immediate visibility into withdrawals or transfers so you can stay ahead of issues before they snowball.”
Set Timelines and Dollar Goals
Having a finish line can help keep everyone focused on the purpose of the account and prevent misuse. Make it clear to all parties either when the funds will be used or set a final amount you’re trying to reach. “It should have low dollar amounts and time limits,” says Gammon.
Alternative Ways to Save Together
Those looking to pool money with friends may want to consider other methods before jumping into a joint account. There is no shortage of apps, digital tools and other strategies that allow you to achieve your goals and simplify your plans.
“A joint account isn’t always the right tool for what you’re trying to accomplish,” says Powell. “The key is choosing an option that gives everyone the right balance of clarity, flexibility and control.”
Designate One ‘Treasurer’ to Own the Account
If your friend group still wants to open a bank account but doesn’t want the liability risks, you may want to choose one person to control the account. Shephard likens this to how a high school student council selects a treasurer to handle finances.
“This financially responsible friend can manage a specific shared fund, and others can send their contributions directly to this person, who then makes the payments,” he says.
Load Up a Prepaid Debit Card
Another strategy that Shephard suggests is for each friend to save up for the event in their own account and then load those funds onto a prepaid debit card when it’s time to spend the money for your joint purpose. This limits liability or potential losses while still allowing your group to pay from one fund.
Take Advantage of Digital Tools and Apps
In many cases, an app or fintech service may be just as useful as a joint bank account, with far less risk.
“If the goal is simply to split expenses or keep shared spending visible, there are lower-risk ways to do that — from budgeting tools to shared-expense apps,” says Powell.
Apps like Splitwise and Settle Up can help you figure out expenses and track what each friend owes and has paid. Another app, Joola, allows you to pool funds together and keep them locked up until a set date or monetary amount is achieved.
Ultimately, you should try to determine the solution that is most likely to keep your friendships and finances intact, says Shephard.
“Prioritize your friendship over financial convenience, and if you open a joint account, treat it like a formal business partnership with a detailed, written agreement covering every possible scenario,” he says. “It’s better to be overly cautious than find yourself in a financial disaster or ruined friendship.”
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A Joint Bank Account With Your Friends Is Risky. Here’s How to Do It Safely originally appeared on usnews.com