Are Swiss Banks Safe?
Switzerland is one of the most popular places for our private consulting clients to set up an offshore bank account. That’s not because we’re biased in favor of Switzerland, or against other countries. It’s just that, for wealthier US clients, Switzerland continues to roll out the red carpet. That’s just not true of many other places unless you have a local residency permit.
Given how much we talk about how to protect yourself against bank bail-ins, the main concern for many of our clients is to find a bank that is safe.
In this article, we’ll talk about how Swiss banks got their reputation as a place for safe and secure banking options. And whether they still live up to it in today’s ever-changing financial landscape with ever more regulations and rules.
Understanding Swiss Bank Accounts
Swiss bank accounts, often seen in movies as the essence of wealth and secrecy, are simply bank accounts held in Switzerland. Known for its stability, privacy, and security, Switzerland has been an international banking center since the 1700s.
Initially, Swiss banks attracted funds from across Europe, offering a safe haven during times of turmoil. Today, high-net-worth individuals favor them for these same reasons. They also value Switzerland’s strong banking laws and stable economy.
5 Reasons to Have an Offshore Bank Account
An offshore bank account is often seen as exotic and slightly mysterious. But there are actually several practical reasons to get one. Find all the information here: Why have an offshore bank account.
The Safety of Swiss Bank Accounts
When we talk about the safety of Swiss bank accounts, we’re not talking about any physical system. It’s the robust financial system behind these accounts that makes them of interest to clients looking for wealth protection.
Swiss banks have a reputation for strict banking safety measures. FINMA, the Swiss Financial Market Supervisory Authority, oversees the banking sector. This ensures strict adherence to financial regulations, protecting account holders’ interests.
Swiss banks must keep high levels of cash on hand — high liquidity in other words. This means they’re ready to meet their obligations, no matter the economic climate.
With a few notable exceptions, Swiss banks have historically operated very conservatively. They prefer stability and safety over high-risk, high-reward ventures. This aligns with the wealth preservation goals of many of our clients.
Regulatory Protections
Beyond the individual bank level, Swiss banking regulations also offer strong protection to account holders.
One of the keystones of this protective shield is the depositor protection scheme. In the unlikely event of a bank’s failure, this scheme guarantees that account holders can recover up to the first 100,000 Swiss francs (roughly $113,000) held in cash. Although not as high as the FDIC’s limit of $250,000 in the US, the Swiss program is much more stable.
The FDIC is administered and funded federally, and in terrible health. For every $100 insured, there’s just $1.15 of actual money to back it. In Switzerland, on the other hand, the deposit insurance scheme is somewhat better funded.
New Swiss Banking Regulations Make Your Money Even Safer
Earlier this year, an asset management colleague gave us another reason to like Swiss banking and investments.
On January 1, 2023, Switzerland introduced new rules, which focus on the custody business. This little-known area of banking and brokerage ensures your funds are protected if a bank fails. Whether designed with this in mind or not, it effectively makes you bulletproof to bank bail-ins.
How Custody Makes Swiss Banking Safer
Imagine your bank faces tough times and goes bankrupt. You’d want to know your investments are safe, right?
The new rules make sure your assets, like stocks or bonds, are kept separate from the bank’s own assets. This separation is key. It means if a bank goes under, your investments can be quickly returned to you. Here’s how it works:
- Segregation of Assets: Investments like stocks or bonds are kept separate from the bank’s own funds. This segregation ensures that your investments remain secure and unaffected, even in times of the bank’s financial distress.
- Chain of Custody: This rule guarantees that your investments are segregated from the bank’s assets right from the start and at every subsequent step. This clear separation helps avoid any potential mix-ups.
- Omnibus Account Separation: It might sound complex but the principle is simple. Your investments are not mixed with those of other clients. They are kept separate. This makes it easier to recover your assets in the event of failure.
- Improved Disclosure: Banks are now obligated to provide more transparent information about the protective measures in place for your investments. This increase in transparency ensures that you are fully informed about the security surrounding your assets.
Because, although Switzerland is known for stability, it certainly can’t hurt to know that there’s a dedicated law ensuring your assets are kept off the bank’s balance sheet.
How does this Compare to US Regulation?
When comparing Swiss custody protection to the US, you need to understand the protections offered by the FDIC and SIPC in the US.
The FDIC insures deposits up to $250,000, providing safety for cash in bank accounts.
The SIPC protects securities in brokerage accounts. But it does not protect against market losses.
In theory, US regulations also require banks to keep assets it manages separate from its own assets. But sometimes that boundary isn’t respected, as we learned during the 2007-2008 financial crisis. And if you borrow money from the bank and pledge the money in your account as collateral, you effectively give permission for the bank to use your funds for their own purposes.
The Story of Gordon: A Real-life Example
Gordon (name changed to protect privacy) was a client who was very concerned with the economic situation in the US. He decided to diversify his portfolio by moving some of his assets to Switzerland. After thorough due diligence and with our guidance, he took the leap, even though the idea of transferring a significant sum was initially daunting.
Gordon’s Swiss bank account wasn’t about chasing high returns; it was about securing a safe haven for his wealth. This decision brought him not just financial security, but also peace of mind. Knowing that some of his wealth was in the Swiss banking system allowed him to sleep better at night.
Privacy and Confidentiality: The Swiss Bank Way
When it comes to Swiss banks, privacy isn’t just a feature; it’s a core part of the system.
Until around 2010, that included privacy over client affairs to their home government. But after the largest Swiss bank — UBS — was caught helping US clients (illegally) evade taxes, that started to change.
Still, even today, if you have a legitimate source of wealth, Switzerland offers almost absolute privacy in just about every other situation. This is something that can’t be found in the US, where — without proper wealth protection planning — your assets are out there for all to see.
Swiss Banking Secrecy: Then and Now
The Swiss Banking Law of 1934 established strict privacy laws. They made it a crime for banks to reveal account holders’ identities.
Of course, many countries have never liked these laws. They think Swiss banks have been used to help their citizens evade taxes.
In truth, they have. And after a series of legal challenges by the US government in the late 2000s / early 2010s, Switzerland was forced to become much more transparent in terms of tax. It has signed an information-sharing agreement with the United States to ensure the IRS receives information from Swiss banks similar to the data received from domestic banks. Switzerland has also signed onto the Common Reporting Standard (CRS), which calls for similar data sharing with the tax agencies of more than 100 other countries. [Note: The US is not part of the CRS.]
However, this transparency only applies to tax.
At a private sector level, Switzerland is still very private. You can set up an account there and, if the funds used for this purpose are legitimate, the only agency that will know of its existence is the IRS.
FAQ
Is it possible for an American citizen to set up a Swiss bank account?
Yes. It is legal for a US citizen to open a Swiss bank account. But, unless you have a personal introduction from groups like us, minimums can be quite high.
What is the minimum amount required to set up a bank account in Switzerland?
That depends on the bank and how the account is opened. At the end of the day, Swiss banks can survive only if they make a profit. In the US, banking is cheap because your information is sold to marketers and your funds are put into loans that make the whole system more unstable. Switzerland doesn’t have that option. The strongest banks don’t make commercial loans at all.
And Swiss banks aren’t allowed to sell your information. So they have to make their money from fees.
At the same time, there’s a limit to what account holders are willing to pay. So, over the years, the Swiss banks have simply raised their minimums. That allows them to make a high enough fee to cover their costs, make a profit, and not be a burden to customers.
If you were to call up a Swiss bank that accepts US clients, they’d probably ask you to put in a few million dollars.
For our clients, as part of our planning service, we can usually get them in with a minimum deposit of $500,000.
Which Swiss bank is best?
There is no such thing as a “best bank” – it depends on your personal wealth protection goals and needs. Each bank has its unique strength and areas of specialization.
Several Swiss banks provide a range of services tailored to meet the needs of American clients. You can find more information here on what we consider some of the best Swiss banks.
Do Swiss banks report to US tax authorities?
Historically, Switzerland was known for banking secrecy. But international pressure has led to regulation changes. Switzerland has signed an information-sharing agreement with the United States to ensure the IRS receives information from Swiss banks similar to the data received from domestic banks. Switzerland has also signed onto the Common Reporting Standard (CRS), which calls for similar data sharing with the tax agencies of more than 100 other countries.
How does FATCA affect Swiss bank accounts for Americans?
The Foreign Account Tax Compliance Act (FATCA) is a US tax law aimed at enforcing the country’s right to tax its citizens globally. FATCA requires financial institutions worldwide to give US tax authorities information on accounts held by US taxpayers. Failure to comply can result in a 30% withholding penalty on all US investments.
Switzerland has signed an intergovernmental agreement with the US to facilitate FATCA implementation, ensuring compliance with US tax regulations and reporting requirements.
As such, Swiss banks must report account info to the IRS. To ensure they can do so without violating Swiss bank secrecy laws, every US customer must sign a waiver of bank secrecy giving the bank authority to share their data with US tax authorities.
The move to FATCA compliance has led to more transparency and info sharing between Swiss banks and the IRS. It has affected the privacy and secrecy tied to Swiss banking for American clients.
The introduction of FATCA has also made Swiss banking less available to Americans. It’s a lot of extra paperwork and compliance that banks just don’t want to deal with. As a result, the vast majority of Swiss banks no longer allow Americans to open accounts. It’s easier, though, if you have a Swiss residency permit.
Do I have to fly all the way to Switzerland to set up an account?
American citizens can open Swiss bank accounts in person by visiting Switzerland or remotely. This really depends on the bank and how they are introduced.
In our case, we work with professionals in Switzerland who are able to get our clients an account with no visit needed.
Are Swiss banks safe?
Yes, Swiss banks are safe. In fact, they are amongst the safest banks in the world.
Switzerland requires all banks to be licensed by the Swiss Financial Market Supervisory Authority. FINMA makes sure the banks follow strict rules.
Is Switzerland a tax haven?
Despite their past reputation as a tax haven, Switzerland has signed agreements with other countries to follow international tax rules, such as the Common Reporting Standard (CRS). They now share banking information to combat tax evasion.
Need Help?
Since 1984, we’ve helped more than 15,000 customers and clients protect their wealth using proven, low-risk planning. A key part is finding safe banks to park your cash — that are less likely to be subject to a bail-in. Sometimes that’s here in the US. Sometimes it’s overseas like Switzerland.
To see if our planning is right for you, please book in a free no-obligation call with one of our associates. You can do that here.
Lump-Sum Taxation in Switzerland: A Guide for High-Net-Worth Individuals and Families
Switzerland’s lump sum taxation is for high-net-worth individuals and families who want a lower tax burden in a nice country. But how does it really work? Let’s have a look: lump sum taxation Switzerland.
