Priority banking is the term used to describe an elevated banking relationship, characterised by greater perks, exclusive access and all-round VIP treatment. It is only offered to those with a certain level of income, in exchange for allowing the bank to manage their assets and wealth.

To the uninitiated, priority banking may seem like some sort of high-end insiders' club, a status symbol that tells the world you've truly made it. But that's just the marketing.

The reason banks offer priority banking is to attract and persuade high net worth individuals (HNWIs) to invest their money in the bank's various products and services. The bank, of course, takes its cut in the form of service fees, charges and commissions.

That's not to say the perks granted are a sham; some of them are truly attractive. However, it is important to be clear-eyed about what the bank is really after. (Hint: It's not to make you feel like a celebrity.)

So now that that's been established, let's take a closer look at priority banking in Singapore, how it works, the pros and cons (yes, there are cons), and which programmes are available.

How does priority banking work?

Signing up for a priority banking account is as easy as filling up an online form to indicate your interest. The bank will then contact you about your application.

If you meet the minimum requirements, you will be accepted into the programmes and can start making use of the various privileges and perks that come with it.

So what are the minimum requirements to qualify for priority banking? Well, your net worth will need to meet or exceed a certain threshold.

More precisely, you need to be willing to put a certain amount of money into the bank – known as Assets Under Management (AUM), or Total Relationship Balance (TRB).

AUM or TRB can be measured in cash, annual income, home mortgage, investments, or any combination of these. In terms of cash, you will need to establish AUM or TRB of between $200,000 to $350,000 to qualify for priority banking, depending on the bank.

Note that some priority banking programmes allow you to qualify by taking out a mortgage worth at least $1 million.

Difference between priority banking and private banking

One step up from priority banking is private banking, which is a higher-tier banking relationship with even more lofty qualifying criteria that is reserved for the truly wealthy (think millionaires and above).

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In reality, priority banking and private banking share some overlap – think of one as a plain vanilla cone and another one as a sundae. Both are essentially ice cream, but one has more toppings than the other.

Not all banks offer private banking; it depends on the segment of the population the bank wants to market to.

Afterall, while the ultra-wealthy may have more money to invest, they may also be more demanding, requiring the bank to put in more resources. There are also less of them, which means competition will be fierce.

In contrast, priority banking customers may have simpler needs. There are also more potential clients, which means a larger market segment.

Hence, banks may choose to offer one or both programmes, depending on their business objectives.

Pros and cons of priority banking

Pros of priority banking

Priority banking members are commonly assigned a Relationship Manager – this can be an individual or a team – whose role is to offer recommendations and advice to help you reach your financial goals.

This can be attractive to those who do not have the time or knowledge to manage their own financial portfolio, or who want some professional insights.

Another benefit is the ability to access a wider variety of financial products and services, including those reserved for priority banking customers. This opens up the range of options available for managing and growing your wealth.

Priority banking customers often also enjoy preferential interest rates, although these may be limited to services and transactions only.

Topping it all off – and often used to spearhead the marketing campaigns – are exclusive perks and privileges that cater to the lifestyle, travel, dining, leisure and shopping habits of the well-heeled. Then there's also the by-now customary priority queue at bank branches.

Cons of priority banking

Priority banking can offer a compelling proposition, especially if the products, services and privileges match your needs and preferences. However, that doesn't mean there aren't any downsides to priority banking.

For one, it's no secret that there are management fees levied on your account, and commissions charged on your investments. The thing is, because priority banking is packaged as a high-end service, the fees are also likely to be higher than, say, an online brokerage.

Also, as explained earlier, the reason banks want you to invest with them is so that they can make money on your assets. The more money you deposit with them, the more money they make. Conversely, if you draw down your account, they can no longer continue making money on your deposits.

As such, you may be subject to penalties if your account falls below a certain amount. The penalty isn't the point; rather it's to compel you to maintain a certain level of funds – so they can continue making money.

Which then leads to a serious consideration every investor should ponder.

By locking up a majority of your net worth in a priority banking relationship – which can span the gamut from savings to investments, insurance, mortgage and more – what is the opportunity cost you have to bear?

Would you be better off investing your money with other mass-market offerings, such as regular savings plans, robo-advisors, online brokerages and the like?

Given the potential for these downsides, signing up for priority banking should be a decision weighed carefully.

4 popular priority banking programmes in Singapore

DBS Treasures

DBS Treasures holds the distinction of having the highest qualifying threshold out of all priority banking programmes in Singapore. You'll need to commit fresh funds of at least $350,000 to qualify – but that's not all.

Additionally, you'll also need to be certified as an Accredited Investor, which requires an annual income of at least $300,0000 or a net worth of $2 million minimum.

The Accredited Investor requirement isn't just for prestige; it's to facilitate access to investment products not otherwise available.

Maybank Premier

Maybank Premier is a holistic wealth management platform that incorporates savings, investments, insurance and credit facilities, all delivered along with personalised advice and recommendations via your dedicated Relationship Manager.

You'll also be entitled to a raft of lifestyle privileges, including up to 4 miles per dollar spent at selected merchants with the Maybank Premier World Mastercard, and exclusive previews at client appreciation events.

Citigold

Citigold is designed with a heavier focus on investments, leveraging insights from its in-house analyst team to help take advantage of trends, developments and opportunities in the market.

There is also a selection of savings and insurance solutions available to facilitate liquidity needs and help protect wealth.

Other notable privileges include cash joining bonus, referral bonus, and preferential deposit rates. Also, Citigold is available globally, offering a seamless experience for globetrotting customers.

To qualify for Citigold priority banking, you'll need to make a minimum deposit of $250,000.

Standard Chartered Wealth $aver

Standard Chartered's priority banking programme has a slightly friendlier eligibility criteria compared to the previous three entries. You can qualify by depositing just $200,000 in fresh funds.

Customers can access a range of online investing services including unit trusts, forex trading, and premium currency investments that offer potentially higher interest rates than fixed deposits.

The platform also offers sustainable investing and legacy planning solutions.

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How to choose a priority banking programme that is right for you

Remember, the best priority banking platform is one that offers the closest fit in terms of your goals, preferences and net worth.

While browsing the websites of priority banking platforms may give you a preliminary idea of what to expect, you won't find enough information to make an informed decision.

Hence, you should approach the different platforms you're interested in to find out what solutions they can offer you, the strategies they recommend, and the projected returns on your investment.

This will give you a clearer view of what they can and cannot do for you.

This article was first published in ValueChampion.