Should you splash out on a private bank?

Private banks are on the hunt for new customers. Gone are the days when the incredibly wealthy banked with the same grand old bank for generations, happily handing over their cash in return for a personalised service. These days, even they are on the look out for the best deals. As a result, private banks are having to reduce their charges and their entry requirements in order to keep the vaults full.

These days you only need to have £25,000 in the bank to attract the attentions of a private bank. If you earn more than £70,000 a year, you are probably aware of this fact. The private arm of your high-street bank will already have been sending you offers to join their 'exclusive' banking service. But the reality is that there isn't anything particularly exclusive about most private banks.

Unless you are "ultra high net worth" (that is, you have investable assets of more than $30m), you're unlikely to get a personal banker at your disposal. Instead, you'll go through to a call centre, one based in the UK and better staffed than most, but a call centre nonetheless. The exception being the old-school private banks such as Hoare & Co and Coutts, who still offer the personal service.

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Nor will you get great interest rates. Cater Allen offers current accounts to those with at least £25,000 on deposit, but only pays interest on balances over £100,000 and even then it's only 0.25%. Hoare & Co and Weatherbys pay only 0.2% on easy-access accounts. Head to the less glamorous Post Office and you can get a rate of 2.9%.

On top of the measly interest rates are the fees. Coutts will charge £600 a year to have a current account with them (unless you have a mortgage or £250,000 of savings and investments with them), but you won't escape the bank charges. Bounce a cheque with Coutts and you'll pay a £30 penalty, go into an unarranged overdraft and you'll be tapped for £35.

There is one area of personal finance where private banks do still hold their own for wealthy clients mortgages. If you're a client you get much better deals on your mortgage. Not only are private banks still prepared to arrange mortgages for large sums, they also offer good rates 1.75% on loans of more than £500,000 (that's the sort of rate available from Swedish boutique bank, SEB Private Bank, reports The Sunday Times).

So if you are eyeing up a palatial home, it's worth talking to a private bank. But if you're just looking for a better home for your current account, you'll find better deals on the high street.

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.