What Is Private Banking?

How Does Private Banking Work?

Private banking is a highly individualized service that meets the financial needs and goals of affluent individuals. Opening a private bank account typically entails contacting the financial institution by phone or going in person and speaking with a private banker. It’s also possible to submit a form online and have a private banker contact you.

Like opening a standard bank account, you’ll need to provide basic personal information, such as your Social Security number, driver’s license or state-issued ID number, and a minimum opening deposit.

Upon opening an account, you will receive a variety of concierge-like services that can help mitigate risks and maximize returns on your money. You can skip contacting a teller and instead speak with your private banker to handle all of your banking needs, which might include:

• Financial planning
• Risk and wealth management
• Trust and estate planning
• Tax planning and philanthropy
• Credit and cash flow management
• Custom lending and credit solutions
• Higher yields on savings accounts
• Investment advice and portfolio management
• Preferred interest rates on mortgages and loans

Who Qualifies for Private Banking?

Private banking clients are usually high-net-worth individuals. Generally, it may be possible to open an account with as little as six figures in investable assets. However, most private banks require assets of $1 million or more. You may have to contact a private banker to discover income and investment requirements.

Advantages of Private Banking

If you qualify for private banking, there are several key advantages you can put to good use.

Concierge Service

Financial institutions offering private banking provide their clients higher-priority and personalized concierge service. You don’t have to stand in line to find a banker to assist you. Instead, you’ll have access to a client advisor or a team of specialists to quickly facilitate all matters concerning your accounts.

Preferential Offers

Although offers vary, you will likely have access to products and services typically unavailable to regular bank customers, such as secured lines of credit, specialized financing, portfolio management, tax and estate planning and trust administration.

You’ll also typically be offered a free deposit box, rush shipping on replacement debit cards, higher daily limits on mobile check deposits, no out-of-network ATM fees and credit card options, including special offerings tailored to your spending and reward needs. Because many private banks offer access to estate planning attorneys at no extra cost to you, you also could save hundreds in legal fees with private banking.

Competitive Rates

Private banking may include better interest rates on deposit accounts, like certificates of deposit and savings accounts, and lower annual percentage rates on loans and mortgages. Many of these accounts also have few or no fees attached. Of course, this can vary from one institution to the next, so it pays to shop around when choosing private banking.

Disadvantages of Private Banking

Along with all the bells and whistles available with private banking come a few disadvantages to consider.

Limited Product Offerings

The private bank may be limited to offering only proprietary products. Bank employees may be able to offer stellar service and connect you with investment, mortgage and tax experts, but the offerings may not be as creative as you may receive if working with a team of financial advisors you’ve assembled on your own. Besides that, private bankers aren’t typically fiduciaries. That means they aren’t ethically or legally bound to act in your best interest.

Bank Employee Turnover

The dedicated team or personal management representative you start with at a private bank may not always be there to handle all of your banking needs. That means you may work with new bankers who don’t know you or have a history of working with you.

This can disrupt the consistency and quality of service you may receive and make it harder to build loyal relationships.

Possible Higher Fees

In some instances, private banking clients may pay for the convenience of one-on-one personal service in the form of fees. It’s also possible that a private bank will charge high account maintenance fees, usually based on a percentage of assets. Or, you may be charged a fee if you can’t maintain the account or asset balance set by the private bank. It’s important to get all the fee details before opening a private banking account to weigh the costs in comparison to the benefits you’ll receive.

Banking’s Best Kept Secret

Private banking offers a slew of benefits for high earners, but it’s not for everyone. While having personalized service and all of your accounts at one bank can keep things private and secure, you may only have access to a limited set of services offered by that bank.

You don’t have to be a millionaire to take advantage of regular bank products and services, however. Open a checking and savings account at your local bank or credit union and take advantage of all other bank services and products that can help secure your financial future.