Gold and other precious metals have traditionally provided a safe haven from tumultuous financial markets. But holding precious metals at home or in safe deposit boxes can be disadvantageous for short-term precious metal investments.
Selling actual precious metals necessitates the physical transportation of those assets to a buyer or purchasing bank, making immediate purchases or sales difficult and time consuming when the buyer and seller are in different locations.
Precious metal accounts let you invest in precious metals without having to handle the administration involved in buying and selling actual physical metal.
Typically, assets held by precious metal account holders are not actually stored at the bank, but are simply held in book entry form (just like regular bank account balances).
Advantages of precious metal accounts
There are a number of advantages to opening a precious metal account rather than buying and storing physical precious metals. Whether or not you could benefit from these advantages depends primarily on the amount of assets you own and how often you expect to buy and sell assets.
1. Security. Holding a precious metal account largely eliminates the risk of theft because you do not own actual precious metals.
2. Liquidity. Precious metal accounts typically do not have notice periods for the purchase or sale of precious metals. You can sell precious metals to the bank or to third parties whenever you choose to. Be aware that transfer fees may apply when you transfer assets to another precious metal account at a different bank.
3. No bullion issuing fee. Precious metal mints and banks each charge a markup on the value of precious metals to cover production costs and turn a profit. When you use a precious metal account, these issuing fees do not apply unless you choose to have actual precious metal physically delivered upon withdrawal.
4. No minimum balance. Although most banks charge minimum annual account maintenance fees, most do not require you to hold a minimum balance in your account.
5. Versatility. Depending on the account you use, you may be able to take advantage of swap, forward or spot transactions.
6. Low exchange spreads. Banks and other precious metal merchants generally use wide buy/sell spreads for physical precious metals. The spreads used for purchases and sales of virtual assets in precious metal accounts are generally lower, so you lose less on transactions. Spreads and commissions vary between banks.
7. No VAT. In Switzerland, no value added tax (VAT) is charged for sales of gold bullion. However, platinum, palladium and silver bullion is subject to an 8% VAT. Because assets held in precious metal accounts are virtual, you do not pay VAT on purchases of these metals. This allows you to invest in precious metals at a lower cost. You only pay VAT if and when you withdraw the assets in physical form.
Disadvantages of precious metal accounts
While there are advantages to using precious metal accounts as opposed to storing assets yourself, there are also disadvantages:
1. Costs. Banks charge account maintenance fees on precious metal accounts which basically amount to 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.
Some banks, like Migros Bank, charge one-off brokerage fees when you buy or sell precious metal through your account. If you buy and sell often, these brokerage fees can pose a high expense. Other fees to consider are physical delivery fees for withdrawing your metal as bullion and transfer fees for transferring assets to a precious metal account at another bank.
2. No guaranteed returns. Depending on how metal rates perform, your investment may gain (or lose) value. In the best case, you may profit on your investment. Unlike regular savings accounts, you do not earn interest on assets, so yields depend completely on the performance of metal investments.
3. 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 phyiscal form.
4. You do not own your assets. Just like money placed in bank accounts, assets held in precious metal accounts only exist on paper until you withdraw them. Once you deposit precious metals into an account, you relinquish ownership of those assets and turn it over to the bank in exchange for a guarantee by the bank to deliver your assets upon demand. You only reclaim ownership of assets when you withdraw them from the bank, for which you pay a withdrawal fee.
Risk of bank failure
Assets in precious metal accounts are not covered by the depositor protection guarantee from Esisuisse, but the certificates of deposit proving your claim to precious metals remain in your possession just like other types of securities. These serve as proof of the debt owed to you by the bank. Whether or not you can claim physical delivery of the underlying assets in the event of bank failure depends on the account terms and conditions.
Swiss precious metal accounts compared
Fees and charges also vary widely. Typically, no account-opening or account-closing fees are charged. The most important fee to consider is the account maintenance fee. This is basically a negative interest rate which is levied as a percentage of the Swiss franc value of assets held in the account. If you plan on withdrawing your precious metal in the future, the physical withdrawal fee is also relevant.
Here is an overview of precious metal account fees at a number of Swiss banks (as per August 2018):
1. Luzerner Kantonalbank
Annual account maintenance fee: 0.20% per annum for gold, platinum. 0.25% per annum for palladium. 0.40% per annum for silver. Minimum annual fee: CHF 30.
Physical withdrawal fee: CHF 150 per withdrawal.
2. Zürcher Kantonalbank
Annual account maintenance fee: 0.20% for gold, platinum, palladium (minimum fee CHF 30). 0.40% for silver (minimum fee CHF 30).
Physical withdrawal fee: CHF 250 per withdrawal.
2. Valiant Bank
Annual account maintenance fee: 0.30% of asset value. Minimum CHF 10. This fee applies to book entry and physical accounts.
Physical withdrawal fee: CHF 150 per withdrawal.
3. Basler Kantonalbank
Annual account maintenance fee: 0.30% per annum for gold, platinum and palladium (minimum fee CHF 30). 0.75% per annum for silver (minimum fee CHF 30).
Physical withdrawal fee: Minting cost at the time of withdrawal
4. Migros Bank
Brokerage fee (when you buy or sell precious metal): 0.30% of the value of deposited precious metals, with a minimum brokerage fee of CHF 10 and a maximum brokerage fee of CHF 250.
Annual account maintenance fee: 0.19% of asset value (average annual account balance of CHF 750,000 or less), 0.17% ( average annual account balance of CHF 750,000 and CHF 1.5 million), 0.15% (1.5 million or more).
Physical withdrawal fee: CHF 200 per withdrawal
5. Bank Cler
Annual account maintenance fee: 0.30% per annum for gold, platinum, palladium (minimum fee CHF 50). 0.60% per annum for silver (minimum fee CHF 30).
Physical withdrawal fee: Physical withdrawal not possible
6. Credit Suisse
Annual account maintenance fee: 0.80% per annum for gold, platinum, palladium, silver. Minimum annual fee: CHF 100.
Is a precious metal account worth it?
A precious metal account offers good value to individuals and businesses looking to invest in precious metal over the long term while benefiting from fast transactions. Short-term investors who prefer exchange-traded products which can be traded using cheap online brokers may find precious metal derivatives and ETFs to be a more flexible alternative.
It is also important to note that Swiss precious metal accounts are subject to automatic exchange of information agreements between Switzerland and other countries.
If you hold small amounts of precious metals, storing these at home is the most affordable option. Household insurance normally covers small amounts of precious metals (up to CHF 5000 worth). A handful of insurers (Allianz and Mobiliar) also let you specify a bank safe deposit box as a covered location in your household insurance policy.
For large amounts of precious metal, storing physical metal in a safe deposit box may work out cheaper than a precious metal account because you pay a flat fee based on the size of the safe, rather than a percentage of the value of assets. Additional costs like private account fees (if you use a bank safe deposit box) and insurance (some private safe deposit box operators offer this) should be accounted for when comparing costs.
Bonded warehouses provide an alternative for precious metal storage, but storage fees range from 0.5% to 2% of asset value – well above the average precious metal account maintenance fees. The benefit of bonded warehouse storage is that you you avoid paying the customs duties and VAT which apply to white metals (gold is not subject to Swiss customs duties or VAT) as long as the metals remain in the bonded warehouse. Another benefit is that you actually own the precious metal in question, hold allocated certificates of ownership, and can withdraw it at no extra charge (customs duties and VAT apply to white metals upon withdrawal from bonded warehouses). Storage fees often include full insurance coverage.
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