Private banking: What it is and how it works (2024)

Private banking is a personalized banking service for high-net-worth individuals. It can help streamline your finances by providing one point of contact who can help manage your wealth and connect you to a wide array of products and services.

Here’s a deeper look at what private banking is, how it works and some of its pros and cons.

What is private banking?

Private banking is a service that some banks and credit unions offer to high-net-worth individuals. In exchange for meeting qualification requirements, which typically involve maintaining a high minimum balance, you get access to personalized wealth-management tools and services.

The bank pairs you with a dedicated professional who coordinates your banking, insurance, loans, retirement and estate planning. Your private banker can also act as a point person when your accounts need specialized attention.

The level of service and the list of products and services available to you typically increase with your level of wealth. Some of these benefits — such as fee waivers, higher annual percentage yields (APY) and special invitations — are often complimentary. Others, such as retirement and estate planning, often come with additional fees.

The fee structure varies with each institution, but it’s typically calculated as a small percentage of the assets you hold at the bank.

The role of a private banker

A private banker is a person who provides concierge banking services, and they may work at a bank or credit union.

Their role is to “act as a financial advisor and trusted partner for the client,” said Michael Collins, a chartered financial analyst and CEO of WinCap Financial. “They work closely with the client to understand their financial situation, goals and risk tolerance, and then develop a comprehensive wealth management plan to help them achieve their objectives.”

In practical terms, your private banker may do things like balance your investment portfolio, offer advice on the best loans for your situation and arrange for special services outside the bank’s normal offerings.

These private banking professionals often have a bachelor’s degree in finance, business or accounting, said Halé Behzadi, the head of Citi Private Bank, North America.

“Sometimes individuals will pursue additional certifications along the way to becoming private bankers,” Behzadi said.

For instance, there’s a Certified Personal Banker designation from the American Bankers Association, or bankers may earn a certified financial planner (CFP) or chartered financial analyst (CFA) certification.

It’s important to understand that private bankers may earn bonuses or commissions on financial products they recommend, said JP Geisbauer, a certified financial planner and CPA.

Depending on their certifications, private bankers may not have a fiduciary duty to their clients. That means they aren’t required to recommend the best investments available on the market, making it harder to get an objective recommendation.

Eligibility and requirements for private banking

The process of getting started with private banking and eligibility requirements can vary depending on the financial institution.

To open a private bank account, you’ll typically contact the financial institution by phone, make an in-person appointment or submit a form online to have a private banker contact you. Or, the financial institution may invite you to use private banking services if you meet asset requirements.

Generally, “clients need to have a substantial amount of investable assets, typically in the millions, to qualify for private banking services,” Collins said. To meet the asset requirement, the bank may count your checking and savings accounts along with investments and retirement funds.

Once you’ve set up your accounts as a private banking client, you’ll meet with your private banker to evaluate your financial strategy.

Exclusive perks and benefits of private banking

Depending on the financial institution, you could get access to products and services such as:

Dedicated customer support: Instead of standing in line at the bank or waiting on the phone, you can directly contact your client advisor, who will answer your questions and handle requests. A single advisor may manage around two dozen clients, giving them more time for individualized service.

General financial planning: Private bankers can help clients make major financial decisions in their personal and professional dealings, such as how much to spend on a home and the best way to sell a business.

Investment advice and wealth management: Private bankers with the appropriate certification may advise you on investments and strategies for growing generational wealth.

Special offers: You may receive exclusive invitations with free or discounted entry to special events, along with the chance to participate in nontraditional investments like private equity deals and hedge funds.

Fewer fees: Private banking customers typically won’t pay ATM fees or monthly service fees on their deposit accounts.

Higher returns: You may receive higher APYs on your interest-bearing checking accounts, savings accounts, CDs and money market accounts, along with a better rewards rate on affiliated credit cards.

Discounted loan rates: The bank may also give you a break on the interest rate you pay for mortgages, auto loans and other forms of borrowing.

Pros and cons of private banking

Private banking gives you access to personalized services and one-on-one attention, but it comes with downsides, too.

Pros

• Convenience: Keeping your cash, loans and investments at one bank makes money management easier.
• One-on-one service: Your private banker can help put together a personalized financial plan and coordinate financial services not available to the bank’s regular clientele, plus connect you with a team of specialists when needed.
• Better interest rates: As a private banking client, you may be eligible for higher rates on your savings accounts and lower rates on your loans.
• Access to alternative investments: You may also get the chance to participate in private investments not available elsewhere.

Cons

• Available only to wealthy customers: You’ll typically need at least $1 million in the bank to access some of the best products and services that private banking offers.
• Limited offerings: While you get access to a special menu of products and services, you’re limited to whatever that institution offers. You won’t be able to shop around for the best options.
• May not have a fiduciary duty: Depending on their credentials or their specific role at the bank, private bankers may not be required to recommend the best products on the market.
• Additional fees: You may pay a fee, usually based on a small percentage of your account balance, for using some of the bank’s special services.

Comparing private banking with wealth management

Private banking and wealth management are two types of services where a professional or team of specialists can help you manage your finances.

The key difference between the two is that “wealth management refers to a broader set of clients, whereas private banking is a subset of those clients — ultra-high net worth individuals and families,” Behzadi said.

• Wealth management is typically available to a wider range of people, often starting with middle-class consumers.
• Private banking is available to fewer people, who have more wealth and receive more personalized services and offerings.

Is private banking right for you?

Private banking would most likely make sense for “someone who just wants one contact to address a majority of their financial needs,” said Ryan Johnson, a certified behavioral financial advisor.

If you’re thinking about using a private banking service, it’s important to research a few institutions and compare eligibility requirements, fees and what you get.

However, because of the limitations that come with private banking, you may not always get access to products and services that best fit your specific needs. Your private banker may only be able to offer you what’s available at that financial institution, and “it’s unlikely that the best option always comes from the same institution,” Johnson said.