Private Banking: What It Is and How It Works
![What Is Private Banking?](/personal-finance/static/2da748efe500a295567eafae29da4340/8ae18/what-is-private-banking.jpg)
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Private banking, or “relationship banking,” is a set of elite services that retail banks and other financial institutions offer to high-net-worth (HNW) individuals and families. It typically includes a range of personalized financial and wealth management services, plus access to a dedicated private banker (or a team of professionals) who creates a financial strategy, manages your accounts, and helps you reach your goals.
Opening a private bank account is much like opening a savings or checking account, except you’ll need to meet the bank’s minimum asset balance, which may be $1 million or more. Here’s a closer look at private banking to help you decide whether it’s right for you.
Private banking is a financial relationship you have with a particular bank or financial institution. As a private banking client, you can skip the teller (and the line) and contact your relationship manager directly via phone or email to get help and complete transactions. While private banking services vary, they generally include:
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Find the right financial advisor with WiserAdvisor
In addition to bespoke financial services, private banking offers perks and privileges that aren’t available to standard account holders. For example, private banking clients may have access to higher deposit account yields, lower fees, and better foreign exchange rates.
Private banking services may come with several costs and fees, which vary by bank and the services each provides. Many private banks charge a percentage of assets under management (AUM), typically 1%. There may also be account-maintenance, transaction, and foreign-exchange fees, though some fees may be waived if you meet minimum balance requirements.
Private banking is intended for high-net-worth and ultra-high-net-worth individuals and families with substantial assets. You’ll need to meet specific asset requirements to qualify.
While minimums vary by bank, the starting point is often a combined monthly balance of at least $1 million in linked deposit, retirement, and investment accounts at the bank (some banks offer better perks the more assets you have). A private bank may also consider your investment goals, risk tolerance, and level of financial literacy to determine whether you’re a good candidate for its private banking services.
Many financial institutions offer private banking. If you’re happy with your existing bank, you can find out if it offers private banking services. Otherwise, here are a few well-known banks to consider:
Private banks don’t typically publish a comprehensive list of services and fees due to the exclusive nature of the business, so comparing your options and finding the best bank for you can be challenging. Before committing to private banking, interview several banks to learn about the perks and services they offer, as well as minimum asset requirements and costs.
Private banking offers access to personalized service, all-in-one financial solutions, and one-stop banking. Still, even if you qualify for private banking, it may not be the right choice for you.
Private banking may work out in your financial favor if you benefit from higher deposit account yields, lower interest rates on loans and credit lines, and fewer account fees. It can also be worth the cost for the exclusive benefits and perks you receive—and having access to an on-call private banker.
On the other hand, a certified financial planner, CPA, and investment manager may offer similar services (and potentially more expertise) for less than you would pay for one-stop private banking. Estimating your costs for private banking versus assembling a team of experts can help you decide if private banking makes financial sense.
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Find the right financial advisor with WiserAdvisor
Private bankers make money through various fee structures. While a flat percentage of your assets under management is standard, you might also be on the hook for account-maintenance fees, transaction fees, foreign-exchange fees, commissions, and more. Pay close attention to the fine print in your private banking agreement and ask for clarification if anything seems unclear. That way, you’ll know what to expect fee-wise and can look elsewhere if the fees outweigh the benefits.
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