A common question among newly engaged and newly married couples is whether or not to have joint, separate , or mixed banking accounts. There are pros and cons to each method. Deciding on which method to use should involve discussion in the practical and relational realm.

Practical Issues Relating to Joint, Separate, and Mixed Bank Accounts

A Joint Checking Account

• Makes Things Simple- there is less paperwork, all the money goes to one place (regardless of how much each person makes),
• Diminishes Confusion and Arguments- money arguments can be greatly diminished when there is an understanding that bills, vacations, and extras all come from the same pot. There isn’t fighting over whose money pays for what when everything is joined together.
• Unity-for many couples, choosing a joint checking account goes beyond the everyday specifics of money spending. Many feel it tells something about their relationship. Marriage is seen as oneness, and that means in all areas, including finances. In marrying one another, couples are leaving their separate ways behind and joining their lives together as one.
• Past History- some individuals come to marriage with past history of large amounts of debt, child support, alimony, etc. Couples might argue that it isn’t fair to ask the new spouse to contribute to those past things that do not involve them.
• Salary Differences- often times, one couple makes more than the other. Joint checking accounts don’t reflect the salary differences when it comes to paying for things.

Separate Bank Accounts

• Individual Spending- this can diminish spending arguments (especially if one spouse tends to be more of a spender than the other). Each person spends from their own account and they tend not to worry about what the other person thinks of their spending.
• Communication- since things are handled separately there is little to no communication about finances in the marriage and family. This can lead to issues with trust and security.
• Who Pays What- with separate banking accounts the most common issue seems to be, who pays for what? If your money is separate how do you determine how to pay for bills, groceries, vacations, and other joint activities.
• Paperwork- there is more paperwork to deal with when handling separate accounts than one.

Mixed Accounts (one joint account and two separate accounts)

• Both worlds- you can merge major expenses in one account (such as the mortgage, bills, vacation, etc), and have separate accounts for each person to have as their personal spending money.
• Paperwork- there are three accounts to keep track of
• Decisions- the couple must decide what things should be paid for from the joint account and what things should be paid for by the individual accounts. They also need to determine how much each of them contribute to the joint account, especially if there is a salary difference.

Personal Experience

In our experience, my husband and I have found that having two accounts worked best for our life situation and best reflected what we believe about our marriage. We have two joint accounts. One major account was set up that deals with all our bills and everyday living expenses such as groceries, gas money, dry cleaning, household expenses, etc.

Our second account that is set up deals with our “fun money.” I am a stay at home mom so we live on just my husband’s salary. I do a few things here and there to earn extra money for us. However, we don’t use that money for our bills. We put that money into the second account and use it for fun stuff, such as hobbies, clothes, presents for people, extra things our kids needs, entertainment, etc. This has been an excellent system for us because it keeps our fun spending completely separate and we don’t have to specifically budget it into our major expenses. Whatever is in the second account is the amount we have to spend and that’s it. Some months it is more than others.

The great part of it is that we don’t end up short with our major expenses because we spent too much of the money on extras. When all of the extras come from one place it gives us much more freedom in our spending. We also chose this method of banking because it best reflects what we believe about marriage. For us, the question was, “How intimate do you want to be?” We felt like in order to experience the closest relationship possible, we needed to truly be one, to truly make our two lives one. If we lived separate lives in some areas and joint lives in other ways, we felt it would impeded our oneness.

In terms of “fairness” when one spouse makes more than the other, or the couple lives on one salary, we still go back to the oneness issue.

In marriage, you are joining two lives, no matter what.

Each person plays important roles and each person contributes to the marriage in different ways, not always the same way (such as equal finances). There are many ways to set up your lives financially. The biggest thing to remember is communication! Always decide beforehand how you are going to handle issues such as bank accounts and be sure you understand the reason behind why you are choosing the method you are.

Whether you choose a joint bank account, separate banks accounts, or mixed bank accounts, remember they work best when they are completely understood practically and relationally.

This is a guest post by Rebecca. A loving mom and freelance writer.

One of the trends that became popular during the housing market boom was relying on home equity to pay for unexpected expenses. The idea is that you can use a home equity line of credit (HELOC) to cover for emergencies. However, even in the good economic times this was probably a dubious strategy for short term savings. Now, with credit tighter than it has been years, using a HELOC for short term savings can be even more of a danger.

Here are some of the reasons to think twice before you use your HELOC as a source for short term savings:

1. Your HELOC is Debt

The first issue with using a HELOC for short term savings is that it is debt. You are borrowing money. This means that you are paying interest, and you will have to eventually make payments on the loan. Piling on more debt to deal with an emergency is rarely a formula for financial stability. Instead, you are likely better off saving up in a high yield account that can provide you with liquid cash.

Even if you are getting a tax deduction for the interest paid on your HELOC, it might not be enough to offset the other costs that can come with increased debt.

2. A HELOC Might Not Always Be There

Since the financial crisis and credit crunch, many are finding that their HELOCs are being closed out, or the available credit is being cut. This means that if you are relying on your credit to be there in an emergency situation, you might be disappointed. You might find yourself with no available cash, and no HELOC to tap. With an emergency savings account, you at least have the cash, and, as long as it is in an FDIC-insured institution, you won’t lose it.

There are restrictions and limitations to FDIC insurance. Please see FDIC.gov for more information.

3. A HELOC Can Reduce Your Borrowing Power

You should also realize that a home equity line of credit isn’t the same as having liquid cash in an emergency savings account. So, if you go to buy a car, or make some other large purchase that requires you to apply for a loan, your HELOC could count against you, and prevent you from making that purchase — or result in a higher interest rate if you are approved.

4. Your Home is at Risk with a HELOC

When you have a HELOC, you are securing the loan with your home. If something happens, and you can’t make payments, then you could lose your home. This can be especially troublesome if you have lost your job, since your lack of income and ability to make HELOC payments can mean foreclosure. It is true that your home could be in danger with a job loss, even without a HELOC, but it is often easier to find a solution for one loan that it is for two. Plus, if you have saved up several months’ of expenses in a high yield emergency savings account, then you can get by for a while before you have to worry about foreclosure.

Bottom line: A HELOC represents more debt, and is rarely a good idea when it comes to short term savings. And, because the bank can change the terms, and cut your credit line, it might not be a reliable source of emergency money. You are probably better off putting an emergency fund in a high yield savings account.

This is a guest post Miranda Marquit is a journalistically trained freelance writer and professional blogger working from home. She is a contributor for Mainstreet.com, Personal Dividends and several other sites. Miranda is not affiliated or endorsed by LPL Financial.

photo credit: p2-r2

With the stock market in upheaval, many are turning to other places to keep their money. Cash is becoming somewhat popular again as investors look for safety. The main drawback to the safety that comes with cash, though, is that the rate of return is rather low. In order to make sure that you are getting the most for your money, it is important to shop around for the best savings account interest rate. Just as you shop around for the lowest interest rates on car loans and mortgage loans, it is important to shop around for the best rate on savings account. What you are able to earn in interest is just as important as what you save when you pay interest on a loan.

Consider Local Banks and Credit Unions

It may seem natural to make your first stop a national bank. However, you might be surprised to find that not all national banks offer the best rates on savings accounts. Smaller banks and credit unions may actually offer better rates because they are trying to compete to bring in more business. As a result, your local or regional bank might provide a slightly higher savings account interest rate. Local credit unions are also known for competitive savings rates.

You might also find that these local financial institutions also offer better rates on CDs, and which can provide an alternative to traditional savings accounts that have low returns. CD cash products can provide higher returns for your money, and if you ladder them properly it is often possible to maintain regular access to money without paying hefty penalties.

Open Accounts at Online Banks

In additional to brick and mortar banks, there are also banks that exist almost entirely online. It doesn’t matter where you live; you can still take advantage of the special offers at online banks. Many of these banks specialize in high yield savings accounts, providing higher interest rates than what you can get at a brick and mortar bank. You might also consider that some more traditional financial institutions offer special online rates. Search “high yield savings account” or “best savings rates” and you can get can see which banks are offering the best rates for savings accounts. There are those accounts that will even give you a cash bonus when you open a savings account. This can be a good way to maximize your savings, since free cash is free cash that can help you earn even more in interest.

Considerations When Opening a Savings Account

It is important to careful consider any strings that might be attached to your savings account. Many cash bonuses require that you keep the money in the account for a minimal amount of time. Other savings accounts might have minimum balances that you must maintain to get the best rates, or restrict the number of withdrawals and transfers you can make in a month. You may also be required to open another account, such as a checking account, and link that account to your high yield savings account. There may not be fees and restrictions on the savings account, but you should read the fine print on the linked account; you may find that the required account costs more than what you make on your high yield savings!

Alternatives to Savings Accounts

If the best savings account rates are still not what you are looking for, there are alternatives. Bonds and other financial products and investments that are considered somewhat low risk may be able to provide a higher rate of return with a reasonably low degree of risk. However, it is important to note that not all savings account alternatives are FDIC insured, and you run the risk of loss.

*CD’s are FDIC Insured and offer a fixed rate of return if held to maturity. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise and bonds are subject to availability and change in price.

This is a guest post Miranda Marquit is a journalistically trained freelance writer and professional blogger working from home. She is a contributor for Mainstreet.com, Personal Dividends and several other sites. Miranda is not affiliated or endorsed by LPL Financial. The opinions voiced in this material are for general information and are not intended to provide specific advice and/or recommendations for any individual.

photo credit: Philippe Put

Emergency Fund To The Rescue

When dealing with a new client the first thing I review might be a surprise. Is it there asset allocation? Not first. Is it the overall beta of the portfolio? Nope not that either. Well it must be the overall strength of their holdings, right? Strike three. Believe it or not, the first item I review is to make sure they have enough money in their emergency fund.

How Much is Enough for an Emergency Fund?

Typically, 3 to 6 months of expenses is the norm. But in a day an age where credit cards are rampant and the housing mess has hurt many families, I would recommend having at least 8 months worth of expenses. Some planners may even suggest up to 12 months. If you have a job that is sales oriented and commission driven, you should be more on the 12 month side. By having a cash reserve, you are protecting yourself of having to use high cost ways of borrowing i.e. credit cards, pay day loans, home equity loans or lines of credit.

Where do You Put Your Emergency Fund?

photo credit: Javier Aroche

You want the money to be liquid. That is a necessity. Checking Accounts, high yield interest savings accounts, money market accounts, CD’s and short term bond funds make good places to park your money (Avoid Auction Rate Securities).

Liquidity refers to how quickly an asset can be converted into cash. Your house is not a liquid asset because it could take months to sell it. Stocks are somewhat more liquid than real estate, but you can lose money on stocks if you’re forced to sell at a time when the market for your stock is less than favorable. Even though interest on liquid investments may barely keep up with inflation, the lower risk is worth the lower return when you may need the money quickly.

Always Shop Interest Rates

Always make sure to shop around. Although it can be convenient to have all your money at one bank, some institutions may offer a considerable more. I have seen checking accounts pay as low as .25% when you could get a money market account paying more than 4%. It always pays to investigate. More interest earned equals more money in case of an emergency.

More to Save, Consider a CD Ladder

If you an adequate amount in your savings, you may consider doing a CD ladder as Patrick did from Cash Money Life.  A CD ladder will potentially help earn a higher yield without having all your money tied up for a significant time period.

Other reads on emergency funds:

• Moolamony: 10 reasons to have an emergency fund
• Get Rich Slowly: Which Online Savings Accounts is Best?
• Frugal Dad: The Need for a Local Emergency Fund
• Free From Broke: Reader Help: Building a Cd Ladder

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