Swiss Precious Metal Account Guide

Gold and other precious metals have traditionally provided a safe haven from tumultuous financial markets. But holding precious metals in bullion can be a sluggish and expensive option for investors who want to be able to buy and sell their assets quickly when the gold price moves.

Trading physical precious metals can be very involving, from an administrative standpoint. Precious metal accounts let you invest in precious metals without having to handle the administration involved in buying and selling actual physical metal. The bank does not actually hold real precious metal for you.

Like the balances of other bank accounts, precious metal account balances are held in book entry form. Your balance goes up when you buy more precious metal, and goes down when you sell precious metal. A positive account balance represents a debt claim, by which the bank promises to pay out your precious metal or its value in fiat currency upon demand.

But precious metal accounts also have disadvantages, including limited protection against bank failures. Additionally, the fees you pay can be relatively high, depending on the bank. You can obtain a detailed comparison of Swiss precious metal accounts as a PDF here.

Advantages of precious metal accounts:

• Advantage: No brokerage fees

With very few exceptions, Swiss banks do not charge brokerage fees when you buy or sell precious metals in book entry form using precious metal accounts. This gives precious metal accounts an advantage over using a stock broker to invest in precious metal derivatives. As a precious metal account holder, you can convert fiat currency to precious metal claims and vice versa at any time without paying a brokerage fee.

• Advantage: Security

Holding a precious metal account eliminates the risk of theft because you do not own actual precious metals. If you only maintain relatively small account balances, the account fees can be lower than the costs of renting a safe deposit box for the safekeeping of bullion. The precious metal deposits offered by some Swiss banks provide another alternative, allowing you to store precious metal bullion at the bank, with your claim represented by allocated certificates or unallocated certificates. However, precious metal accounts have a value added tax advantage over these deposits (more on this below).

• Advantage: Liquidity

While many banks require you to order precious metal bullion in advance and only pay you for bullion sales after the bullion has been authenticated, precious metal accounts typically do not have notice periods for the purchase, sale or withdrawal of assets. You can sell precious metals back to the bank at its going rates at any time. Some banks also allow transfers to other precious metal or custodian accounts.

• Advantage: No bullion minting fees

Precious metal mints and dealers each charge a markup on the market value of precious metal bullion to cover production costs and to turn a profit. These issuing fees do not apply to assets in precious metal accounts unless you choose to withdraw precious metal in bullion (at banks which provide this option) instead of exchanging it into Swiss francs.

• Advantage: No VAT

In Switzerland, no value added tax (VAT) is charged for sales of gold bullion. However, platinum, palladium and silver bullion are subject to VAT. Because assets held in precious metal accounts are simply book entries and not actual precious metals, you do not pay VAT on purchases of these metals. That lowers the initial cost of investing in platinum, palladium, and silver. You only pay VAT if you withdraw physical precious metal from your account balance.

• Advantage: Smaller spreads than physical bullion

Banks and other precious metal merchants generally use wide buy/sell spreads for precious metal bullion. The spreads used for purchases and sales of book assets in precious metal accounts are typically much lower, so you lose less on transactions. Spreads and commissions vary between banks.

Disadvantages of precious metal accounts:

• Disadvantage: No interest

Unlike savings accounts for fiat currencies, no interest is earned on the balances of precious metal accounts. So, while you may (or may not) earn capital gains if the value of your precious metal claims increases, you are not guaranteed a return. If you prefer a guaranteed return, then using a savings account, medium-term notes, or bonds may be more suitable.

• Disadvantage: Account fees

Banks charge account maintenance fees for precious metal accounts. These fees are basically negative interest rates. Fees are levied as a percentage of the financial value of your assets, so if the value of your precious metal increases significantly, the account maintenance fee also goes up. The annual precious metal account fees charged by Swiss banks are typically similar or identical to their annual custody account fees for securities safekeeping.

If you hold a large amount of a precious metal (several kilograms), storing it in a bank safe deposit box may work out cheaper than holding it as a balance in a precious metal account.

• Disadvantage: Spreads may be uncompetitive

When you invest using a precious metal account, you are limited to opening and closing investment positions at the bank’s going bid and ask rates. You may, in some cases, be able to buy cheaper or sell higher by using affordable online trading platforms instead.

• Disadvantage: Physical delivery fees

While some Swiss banks allow you to deposit physical precious metals into a precious metal account free of charge, you should be ready to pay fees of up to 200 francs if you choose to withdraw your precious metal from the bank in bullion.

• Disadvantage: No bank depositor protection

Unlike the balances of savings accounts, the balances of precious metal accounts are not automatically covered by the bank depositor protection scheme from Esisuisse. Only precious metal accounts which give you the contractual right to make withdrawals in a fiat currency are covered by Swiss depositor protection.

• Disadvantage: You do not own your assets

Just like money placed in bank accounts, assets held in precious metal accounts only exist in book form until you withdraw them. Unlike the balances of Swiss savings accounts, Swiss precious metal account balances are not protected by the depositor protection guarantee from Esisuisse. Exception: If your account agreement gives you a contractual right to claim repayment in fiat currency, then it is covered by depositor protection.

Gold, platinum, palladium, and silver

Typically, a precious metal account is denominated by just one precious metal. Most (but not all) banks offer precious metal accounts based on gold, platinum, palladium and silver. You will typically have to open a separate precious metal account for each metal you wish to invest in, and a minimum account fee will be charged for each account individually.

Swiss banks generally require you to open a private account, savings account or business account with them in order to open precious metal accounts. If you maintain a special bank account for the sole purpose of using a precious metal account, you should account for the ongoing costs of that account in addition to the cost of the precious metal account.

Are precious metal accounts worth it?

Precious metal accounts are designed for individuals and businesses who want to invest in precious metals over mid-to-long investment terms while periods without the hassles of holding bullion or the costs of trading metal derivatives using a stock broker. Short-term investors, on the other hand will likely find cheap online brokers to be a more flexible alternative for frequent trading.

If you already hold precious metal bullion, there is little value in swapping your bullion for a balance in a precious metal account. If you hold small amounts of precious metals, storing these at home is the most affordable option.

For large amounts of precious metal, storing physical metal in a safe deposit box may work out cheaper than a precious metal account. The reason is that precious metal accounts have ongoing fees that are based on a percentage of the value of assets.

Comparing is worth it

The differences in the costs of precious metal accounts from different banks are huge. The annual fees of the most expensive accounts can be up to twice as high as those of the most affordable accounts. Some banks charge brokerage fees when you buy and sell, and some charge closure fees when you terminate your banking relationship. If you plan to eventually withdraw your precious metal in physical form, then the fees for physical withdrawals are also relevant.

More on this topic:
Compare Swiss precious metal accounts now
Tips for buying gold in Switzerland
How to invest in gold
How to invest in silver