A joint account for paying out rent and bills in a shared house can seem convenient, but the risks might outweigh the advantages. Find out more…
Whether you’re a student or a young professional, living in a shared house can be sociable and could save you cash.
But it can also be annoying and stressful when things don’t go to plan, especially where money’s involved and everyone’s making payments for various bills from a number of personal current accounts.
One way to keep things simple and make sure everyone’s paying their way is to open a joint account to pay your household bills from.
But you do need to be aware that it can have serious and long-term implications for your credit record if something goes wrong.
The process of opening a joint account for bills is usually straightforward, although it often requires a branch visit by all account holders.
Find a time you can pay a visit to your chosen bank together and bring proof of address and ID.
You’ll each be asked to sign a mandate which sets out what each account holder is allowed to do, such as signing cheques or withdrawing money.
The crucial thing to be aware of with a joint account is that all account holders may not have the same permissions.
Sometimes there's a ‘lead’ account holder, who can perform more account actions without the agreement or signature of the other account holders.
If this will be an issue for your group, you need to find an account that treats each account holder equally - check the mandate carefully to make sure the account will let you all perform the types of transactions you need to.
Probably the cause of most misunderstandings and arguments with a joint account for a shared house can be making sure everyone pays in the right amount at the right time.
A popular way to do this is to have everyone paying in a set amount that will help create an emergency reserve fund.
If you can’t all agree on a way of paying in what you owe in a fair way, or you feel not everyone is trustworthy, it’s probably best not to go down the shared bank account route at all
For instance, if your bills and rent each come to approximately £470 a month, you could choose to each pay in £500 a month.
It sounds simple, but if you all get paid on different days of the month, or someone gets paid weekly instead of monthly, there might not be a single day when everyone can pay in at the same time.
If this is the case, things could quickly go awry - it could get confusing or a bill might be deducted from the account when there’s not enough money in it, costing you bank fees.
If you can’t all agree on a way of paying in what you owe in a fair way, or you feel not everyone is trustworthy, it’s probably best not to go down the shared bank account route at all.
Setting up all your bills from a central account is what makes a joint household account so convenient.
Simply have each billing company set up a direct debit on the household account and the payments will be taken automatically.
Similarly, you can set up a standing order to your landlord to pay the rent automatically each month.
A major danger with a household account is that, as with any joint account, you’ll create a financial association with the other account holders on your credit file.
In some cases, sharing a financial association with someone with a poor credit record could mean you’re turned down for credit, as lenders might check their credit history as well as yours.
What’s more, if things go wrong with the household account, you’ll all be held equally liable for the debt.
This means it could adversely affect your credit rating if one of the other account holders fails to pay and causes the account to go overdrawn, or to exceed a planned overdraft limit.
If each tenant has set up an automatic payment to the household account from their personal account and all your bills have been set up to be deducted by direct debit or standing order, the account should run like clockwork.
But sometimes things go wrong - a tenant doesn’t pay in what they should, or when they should, or perhaps even absconds with everyone’s cash.
You should check all the household bills when they arrive to make sure you’re all paying in enough to cover the costs
If the problem is with another tenant failing to pay, you can cancel the mandate on the account, which will freeze the account and prevent any further transactions, buying you time to discuss the problems and hopefully find a solution.
If it’s more serious, such as a tenant taking money from the account that was supposed to be for bills, the situation can be difficult to resolve.
Again, the first step is cancelling the mandate to freeze the remaining funds, but the bank will assume that each account holder has equal entitlement to any money left in the account, as well as equal responsibility for any debt. You might have to go to court to try to prove otherwise.
As with most things, prevention is better than cure, so consider the following:
It’s wise to make sure the original mandate is set up to prevent problems - asking for no debit cards or cheque books to be issued on the account and for outward transactions to require joint authorisation from all account holders might help prevent problems.
Each account holder will get their own bank statement, so make sure you check yours carefully to see that everyone’s paying up what and when they should.
In addition, you might all have access to internet banking, so you could use that to check regularly that everything’s in order.
You should also check all the household bills when they arrive to make sure you’re all paying in enough to cover the costs.
You could help avoid bank charges for unexpectedly large bills by each paying in enough to create a reserve fund, or by choosing an account with an overdraft that can be used as a buffer.
Try to nip any issues with payments in the bud - talking about things sooner could prevent a problem from snowballing.
Finally, don’t be pushed into signing up for a joint account if it’s not for you.
The risks to your finances and credit record need to be seriously considered and there’s a certain degree of trust and communication needed for any joint account to be run successfully.
This might not be something you can rely on from people you’ve just met at university, or even from friends you’ve known for longer, so don’t feel pressured into joint banking if that’s the case.