Switzerland is a financial center, and as such, it has become one of the most popular places to do business in the world. With a population of around 8,000,000, Swiss businesses have a lot to dangle in front of clients.
But why do millionaires keep their money in Swiss banks? The answer is simple: it’s because they want to avoid taxes. It doesn’t matter how much or how little you have; if you’re not paying your fair share, then you are not doing your job as a citizen. Of course, there are other reasons too. Let’s focus on why rich people prefer Swiss bank accounts.
Why do millionaires keep their money in Swiss banks?
Switzerland is a country that has been known for its banking secrecy laws. The government, which was founded on the idea of individual freedom and democracy, does not require bank accounts to be disclosed or open books about who owns what.
Swiss law, in particular the Federal Act on Financial Services (FinSA), requires that banks maintain high capital levels and robust depositor safeguards to ensure that any deposits are secure from the financial crisis.
Lower levels of financial risk contribute to the millionaires keeping their money in Swiss banks. Here are the top four reasons that someone would want to bank with Switzerland:
Low level of financial risk
All the Swiss banks ensure a high level of banking security which minimizes the number of risks taken by customers. It is a safe haven where people from across the world put their money, and this high-security level is one of the most important reasons behind it.
The Swiss have been relatively stable in their institutions and their currency. This is why people choose to open Swiss bank accounts. It has a stable economy and has not been involved in any wars with other countries since 1505. As a result, even major global conflicts had no impact on the country’s economy.
In addition, the Swiss franc has significantly increased in value against the U.S. dollar over the past 22 years. The central bank also has a robust monetary policy which made the swiss franc the world’s strongest currencies.
These basic factors helped to reduce the level of financial risk for millionaires like
- Market risk,
- Credit risk,
- Liquid asset risk, and
- Operational risk.
High level of privacy
Some people use Swiss banks to avoid taxes on their wealth or investment profits. There is a banking secrecy law in Switzerland and on the official level. In 1934, the Swiss Banking Law was made to make it illegal for banks to disclose clients’ information.
For this reason, banks do not disclose the identity of their customers and the amount of money they keep in their accounts.
This law is one of the primary factors that makes Swiss private bank accounts so attractive. Therefore customers know that their account will be just as protected with a Swiss bank account as it would be if they were treated by a doctor or consulted by an attorney.
Strong depositor protections
In Switzerland, the deposit protection scheme is quite robust. The Depositor Protection Association plays an important role here.
The deposit insurance program is governed by the Swiss Bankers Association (SBA). It ensures the millionaires that their money is kept safe in Swiss banks, and also it securities the dealers.
Depositors of an insolvent bank will have their safeguarded funds paid out to them within one month of bank failure, thanks to the Depositor Protection Association. Depositors do not have to convince a bank or a regulator that they deserve this money.
As soon as a banking institution goes bankrupt, the members of this association are called upon to cover the outstanding claims that are valid under the insurance scheme.
It is guaranteed, and it is the responsibility of the Swiss Financial Market Supervisory Authority (FINMA) to enforce the policy for the client’s asset protection.
Switzerland’s financial system is stable. During the last global financial crisis in 2007/08, the U.S. financial system and stock market have had a significant economic impact. Switzerland was also affected, although not to the same extent as initially feared.
The Swiss government is very active in monitoring their country’s banking sector, which contributes about 10% of the total GDP. The SNB also took steps to protect financial stability by cutting interest rates and setting an exchange rate threshold at 1.2 CHF per euro.
It helped them recover quickly; otherwise, things might get too expensive for Switzerland, like on Wall Street.
The economy is diversified, and the Swiss real estate market is quite stable. This European country has also been actively involved in international monetary cooperation and economic policies. Combined with these high levels of stability, Switzerland is an extremely safe place for a wealthy person.
How to open a Swiss bank account for non-residents?
It’s not difficult to open a Swiss bank account for non-residents. You just fill out some forms and provide some documentation about your identity.
They will ask for an official passport, but in the U.S., a driving license is enough. Depending on the type of account, there are different minimum balance requirements, which can range from a few thousand dollars to millions of dollars.
Can U.S. Citizens open a Swiss Bank Account?
For U.S. citizens, opening a Swiss Bank Account is still an option. The country has always been seen as a tax haven because of the ease with which money could be hidden from law enforcement.
But recent changes in regulations and implementation of the Foreign Account Tax Compliance Act (FACTA) made it complex for U.S. citizens to do so, which means that hiding money from the IRS will no longer be possible.
In order to be compliant, accounts must follow SEC regulations and meet IRS requirements for tax compliance. This change in regulations can have a huge impact on those who have already put their money into Swiss accounts that are not compliant with U.S. law.
How much money can you put in a Swiss bank account?
You can put as much money in cash into or out of your Swiss bank account as you like, and you don’t have to declare it when entering or leaving the country.
There is no limit to that. This includes Swiss francs, foreign currencies, securities, checks, gift cards, and other cash equivalents. Large amounts of money can be exchanged in any branch of the bank.
Do Swiss banks report to the IRS?
Swiss banks are required to report any Americans who have accounts within their institutions under the FATCA law. Swiss Foreign Account Tax Compliance Act (FATCA) came into effect on June 30, 2014.
The IRS will receive this information directly from Swiss firms, subject to reporting with the clients’ consent.
The financial institution will calculate the net worth of offshore assets and identify any American to the IRS if even a single dollar is on their accounts. This makes it difficult for Americans to open Swiss bank accounts anonymously.
There are many reasons why millionaires keep their money in Swiss banks. It is a market leader for low-risk investments. The Swiss banking sector is one of the least regulated in the world in terms of privacy. Swiss banks are recognized as safe havens by the world’s financial institutions.
There are also many myths surrounding Swiss banking secrecy. But, here’s the truth: It is not illegal to keep your money in Switzerland, and it’s not only for the world’s richest person. You will also be able to do so without any risk to your privacy or money to be set for life.