Banking 101: What You Need to Know About Private Banking
Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.
Private banking is a service or product package that some top banks provide for a select few.
Unlike regular banking, which is widely available to the public, private banking is only available to the wealthy — often called “high-net-worth individuals” — making it inaccessible to the majority of Americans.
At the most basic level, it’s a simple system. In exchange for entrusting a large sum of cash to the bank, the client is given access to an exclusive subset of financial products, services and perks.
What private banking entails
Private banking can cover products and services including:
- Checking accounts
- Savings accounts
- Safe deposit boxes
- Credit cards
- Mortgages (as well as refinancing)
- Investment management
But the range and types of accounts available will vary from one financial institution to the next. So those who are interested should look into each bank’s offerings to find out the specifics.
Private banking perks
Lower interest rates on loans, higher transaction limits, better terms on mortgages, access to larger loans, zero or lower fees for certain products. These are some of the possible perks a client might enjoy. But, again, those vary from bank to bank.
Chase Private Client, for example, waives its foreign exchange rate adjustment fee on debit card purchases and provides free Arts and Culture passes in certain U.S. cities. Citi gives it private bank customers trust services and aircraft financing. Goldman Sachs offers cash-flow management solutions. And Wells Fargo gives private bank clients access to treasury management services and By Invitation Visa credit cards.
But the main draw of these accounts, according to Ken Tumin, founder of DepositAccounts.com, is being assigned a specific banker who serves as the go-to person for the client.
They would act as the direct point of contact for all financial management needs. That means that rather than going through customer service or only having an investment manager for your 401(k), you could get a more holistic view of your finances through a dedicated specialist who is well-versed in your needs and goals.
Requirements for private banking
The perks might be appealing, but there are often steep requirements to qualify, usually in the form of a minimum account balance. To give you an idea, here’s a few examples from some of the top U.S.-based banks.
|Chase Private Client||Maintain a daily minimum balance of $250,000 or more|
|Bank of America||Generally reserved for those with at least $10 million of investable assets|
|Citigold||Maintain a minimum combined monthly balance of $500,000|
|Wells Fargo||Minimum of $1 million in investable assets|
|Goldman Sachs||$10 million minimum|
Though each bank has its own eligibility requirements, the general constant is that you have to be wealthy to access private banking.
As Tumin notes, you don’t necessarily have to be part of the one percent to qualify — a retiree, for example, might have enough stashed away to be eligible. But you do still have to have quite a bit of cash that you can dedicate to this suite of services to be able to take advantage of its perks, and that could be a deal-breaker for some of these individuals.
Is private banking worth it?
The short answer is maybe. Everyday Americans may not be able to access private banking, but that doesn’t necessarily mean they’re missing out. And there are drawbacks to these arrangements, besides to the perks already outlined.
For example, not only can signing up for a private banking option mean tying up quite a bit of cash at one financial institution, but it can also mean losing out on interest earnings. Online-only banks, for example, could give you more favorable rates on certain products, like basic checking or savings accounts, while big banks — like the ones that offer private banking — have been offering much lower rates for the last decade. And some of those internet banks even offer a lot of the same account perks, including free ATMs or reimbursements, Tumin said.
“They haven’t been trying to compete on rates,” he said. “They’re hoping that, in moving these clients into their brokerages, they can keep them.”
That’s another potential drawback: There’s a sort of inherited bias that limits you to the products offered by one particular bank. So instead of cobbling together a mix of high-rate accounts from several institutions, you could end up selecting from a smaller pool of opportunities to grow your wealth.
In response to this, some DepositAccounts readers, Tumin said, have complained that having this type of dedicated advisor and plan could result in the customer feeling pushed into or encouraged to get certain securities — such as stocks, bonds and mutual funds — that they didn’t want. This is especially problematic for those who prefer to be more hands-off with their finances.
Getting the most out of private banking takes a certain amount of financial know-how, and coming out on the positive side ultimately requires a fair bit of research of the various packages offered by each bank. If you’re interested in private banking, it’s vital to know what perks and products are most important to you and which aren’t. That will help ensure that the value its provides isn’t outweighed by the potential drawbacks.
Also worth mentioning that investment accounts (in which you can make self-directed low-fee ETF/MF purchases, you don't have to use their advisor) with these banks can count towards the required money amount, it doesn't have to just be sitting in low-interest bank accounts.