Consumers often wonder about whether or how to add someone else, usually a relative, to a bank account. These decisions are not to be taken lightly. FDIC Consumer News can't advise you on how to share your money or your accounts, but we can give you guidance about the implications of adding names onto deposit accounts, safe deposit boxes and loans.
Adding co-owners to a deposit account vs. alternative arrangements. Under FDIC rules, a joint account is a deposit account owned by two or more people who have equal rights to withdraw 100 percent of the deposits and to close the account. "For a couple wishing to share common funds, the upside is that each person may write checks and pay bills from the account, which is certainly a convenience in managing a household or as someone needs assistance," said Joni Creamean, Chief of the FDIC’s Consumer Response Center.
In addition, each co-owner is insured for up to $250,000 for his or her share in all joint accounts at an insured bank. "For someone who wants to add co-owners primarily for convenience purposes or accessing funds in an emergency, carefully consider how limits on withdrawal rights could affect your insurance coverage," warned Martin W. Becker, an FDIC Senior Deposit Insurance Specialist.
For example, if a single mother adds two children as co-owners but specifies that they must act together to withdraw any funds, the three individuals do not have equal withdrawal rights and the account would not necessarily be FDIC-insured up to $750,000 ($250,000 for each person named). "In this situation," Becker explained, "the FDIC would have to look to state law to determine the ownership interest of each person and would provide deposit insurance coverage accordingly."
Becker noted that there is another, better way to give someone limited access to a deposit account on an as-needed basis without granting ownership rights. That is to obtain a power of attorney — the written authorization for one or more people to represent or act on another’s behalf in financial affairs or other personal matters. Powers of attorney can be broad, allowing unlimited access, or narrow, limiting access to accounts.
Allowing others to access your safe deposit box. The rules and procedures for safe deposit boxes can vary by state and by bank, so ask your bank about the options for granting someone access and what you would have to do if you later change your mind. "Remember that this person could go to the box and take anything out, without your approval," explained Edward Nygard, an FDIC Senior Consumer Affairs Specialist.
Adding co-owners vs. "authorized users" to a credit card account. A co-owner is financially responsible for all debt incurred, including any charges by an authorized user. Depending on the cardholder agreement, authorized users may or may not be financially responsible for any debt on the card. A card owner also may be able to place restrictions on authorized users, such as limits on amounts that can be charged.
Think carefully before you co-sign a loan. "If the other co-signer does not pay the debt, you will have to," Creamean said. "You may also have to pay late fees and collection costs, which increase the debt amount. Additionally, your credit rating could be affected if this person fails to pay or pays late."
Want more guidance about adding names to accounts? Consider consulting an attorney, your banker or another advisor.
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