Last Updated July 25, 2020
Dateline: Warsaw, Poland
One of the biggest challenges in the world of offshore strategies and flag theory is one that many other businesses face.
The advent of the internet has allowed anyone, in any corner of the planet, to talk about topics as sophisticated and important as offshore banking. Of course, I’m all for freedom of speech, and I’m glad that more and more people are realizing the benefits of internationalizing their bank account.
However, the reality is that there is an endless supply of shady characters out there promising everything from cheap diplomatic passports to totally secretive private bank accounts.
If only you pay them, they’ll open some anonymous account for you at “Bank X” (they would love to tell you the real name, of course, but they really can’t due to whatever reason).
Because of this confusion concerning different types of offshore bank accounts, it’s worthwhile to discuss exactly what a private bank account is, what it’s not, and why, how, and where you should or should not get one.
What is Private Banking?
For starters, private banking does not mean anonymous banking. In reality, the old Swiss-style numbered bank accounts no longer exist. In our day and age of common reporting standards and FACTA, you just can’t hide money anymore.
The only way to find that kind of privacy for your bank account is to legally give up your tax-payer status at home and move somewhere that doesn’t care as much about what you do with your money.
It isn’t an easy option, but if that’s the kind of private banking you’re looking for, it may be worth renouncing your citizenship and going where you’re treated best.
But the private banking we’re discussing here refers to wealth management accounts held by affluent individuals who want banking with a higher level of customer service and hands-on management. Often, private banking relationships involve clients’ investments being made by bank officers.
The origin of these types of private bank relationships dates back to the 16th or 17th century in both Switzerland and the United Kingdom. Even before the term existed, businessmen in Venice accepted and re-invested money from affluent families who wanted safekeeping for their wealth.
The first private banks were unincorporated companies that made liabilities of the general partners’ personal assets in addition to the depositors’ assets in the bank.
Over time, many of these banks became incorporated and began to look more like the banks we know today. In fact, the main differences between a private bank and a regular bank these days are simply the minimum deposit required and the services performed.
How To Open a Private Bank Account
The main barrier to entry to obtain a private bank account is a minimum deposit that the bank will then manage for you.
For me, the lowest minimum deposit level to consider is around $250,000 (substitute “francs” or “euros” for “dollars” as appropriate). There are a few banks in Switzerland that offer decent service at that level, including one open to US persons so long as they’re living overseas.
In the United States, JP Morgan has been pushing its way into the semi-private bank market through its network of retail banks with a $250,000 minimum (of course, Chase is about the worst bank if you want to go offshore).
Similar to the exclusivity of platinum cards, the term “private banking” has been somewhat diluted. I have shared my story about HSBC Premier, which offers quasi-private banking services with a minimum of around US$100,000 in most countries.
But service at HSBC Premier leaves much to be desired.
While I have come to find HSBC rather unappealing and their level of service for that deposit level rather poor, you can’t expect private bank-level service in the low six figures.
Once you reach the $1 million level, more options will open up to you. There are a few banks in Singapore with legitimate private banking at that level, although Asian banks are increasingly raising minimums.
If you want to be accepted at virtually all private banks, you’ll need several million dollars. Offshore private banks often demand even more; HSBC Private Bank, for instance, demands $5 million in deposits at its offshore division in the Cook Islands or in countries like the United Kingdom.
Where To Get Private Banking
There is a growing number of banks offering “premier” and “private” bank accounts in countries ranging from Singapore to Switzerland to Monaco to the Middle East. You can also find private banks in more “offshore” locations such as CSB Bank in the Cook Islands.
When researching private banks, it’s important to pay attention to customer service. How well is English spoken by bank employees? How well are you treated? It may seem obvious, but when you’re handing over a large sum of money, you want to be confident the bank will hold up its end of the bargain and not treat you like a mere number.
One trend I see is that Asian banks are increasingly imposing higher minimums as more uber-wealthy Chinese flood into banks in places like Hong Kong. Private banking at the highly conservative local banks in Hong Kong is largely reserved for locals and HKID holders.
With so much local demand, they don’t have much need for your money.
Another big private banking destination is the Middle East, which actually has some of the strongest banks in the world. Again, there is so much wealth floating around there that many westerners may be surprised to know that their $500,000 is a drop in the bucket there.
Do You Need A Private Bank Account?
Whether you choose an offshore bank when “going private”, or you stick to your home country, a private bank account will come with the expectation that the bank will manage your money for you.
Swiss banks, in particular, want to see minimal transactions in and out of the account. A private bank account isn’t what you need if you need to be receiving salary payments, taking business draws, or paying third parties.
If, however, you have money that is sitting around – proceeds from the sale of a business, family wealth, or whatever else – a private bank relationship can provide you with better service and your own relationship manager at the bank.
If you’re on the edge of qualifying for private banking, I would suggest opening a traditional retail account or even a priority banking account at the bank of your choice and then upgrading to a premier or private account later if you’re satisfied. The last thing you want to do is transfer all of your money to a bank you end up disliking.
If you need help finding the right bank for you, feel free to reach out to our team so we can determine your best options as part of a personalized and completely legal offshore plan.