Let’s break down the differences between a joint owner and beneficiaries. It sounds daunting, but it’s not. The distinctions have to do with two factors: access to funds now or later.
A joint owner or co-owner means that both owners have the same access to the account. As an owner of the account, either co-owner can deposit, withdraw, or close the account. You most likely want to reserve this for someone with whom you already have a financial relationship, such as a family member or business partner. This level of access means they can do everything you can do with the account, so be vigilant about who has access. Your college roommate might be a bad choice.
One of the benefits of having a joint account is the additional FDIC insurance. Joint accounts are FDIC insured for up to $250,000 per account owner. That means a joint account with two owners is covered for up to $500,000 in FDIC insurance.
Other benefits include:
- Couples can share an account to cover shared expenses or save for a common goal such as buying a house.
- Adults can have direct access to funds to help their elderly parents manage their finances.
- Joint accounts can allow for the other co-owner to have immediate access to funds when a co-owner dies.
Typically, you cannot remove a co-owner from an account once the joint account is established. If you change your mind, financial institutions may require that you close the account rather than remove the co-owner. Check with your financial institution for details on their joint account policy.
A POD (Payable on Death) beneficiary is someone that you name as a recipient of the funds within your account upon death. As the account owner, you control the money, and you can add, modify, or remove beneficiaries at your discretion. Beneficiaries have no ownership or right to the funds in the account while the account holder is alive. You can have multiple beneficiaries and allocate different percentages to each one.
The FDIC insures POD accounts separately from single and joint accounts. A POD account, also known as a Revocable Trust account, is insured for up to $250,000 for each unique beneficiary, per account owner, for up to five beneficiaries.
There may be different advantages and disadvantages of having a joint owner or beneficiaries. Remember to consider your financial situation when making this decision. If you are thinking of opening a joint or POD account to gain additional FDIC insurance, make sure you choose a financial institution that is FDIC insured.