Self-Directed IRA Expert: Horizon Trust BlogFebruary 18, 2020by Horizon TrustCustodian VS Depository: What Are They and How Are They Different

Custodians and depositories ensure compliance as it relates to information security and legal procedures. Choosing one will depend on your investment goals.

When it comes to investing in your future, one of the first decisions you’ll need to make is who to trust with your assets. Both depository and custodians can help you build a retirement fund, but they aren’t created equal.

When deciding considering a custodian vs depository account, it’s important to consider your own investment strategy. This is particularly true if you want to invest in a self-directed IRA, as only custodian accounts will be able to manage your needs.




Generally speaking, a depository is a financial institution that allows customers – consumer, business, or otherwise – to deposit funds, assets, or securities for safekeeping and/or management.

Commercial banks, credit unions, and thrifts are considered depositories. Though the role of a depository can change, in investment situations, they typically maintain a higher level of control over client assets.

As such, depository accounts allows for a passive relationship between the client and the depository. When making investments, transfers, and other asset decisions, depositories act upon their own judgment.

When working with a deposit account, clients typically trust that the depository will make decisions the best decision based on their long-term goals and risk-tolerance levels.

Another important characteristic of depositories is their level of liability. In many cases, particularly when it comes to traditional banking activities, depositories maintain full liability in the event of a loss.

Depositories also maintain a regulatory position, ensure compliance, participate in auditing activities, and monitor transactions and other financial activities to ensure that they are completed in accordance with both domestic and international laws where applicable.




A true custodian, on the other hand, plays a primary role in custodial operations. Their efforts include trade execution and reception, reconciliation, account settlement, and reporting and other account management activities.

Like depositories, custodians do carry some liability, but it’s limited. Further, custodians also play a reduced role when it comes to making account decisions.

Whereas depositories may manage portfolios and make decisions on behalf of a client, custodians execute the wishes of clients but do not make investment decisions on their behalf. This means that custodial relationships are often considered active relationships, where the client is the lead voice in investment strategies.

Still, custodians do share some core functions. For instance, both custodians and depositories ensure compliance as it relates to information security and legal procedures. Both also perform basic due diligence as it relates to financial risk management.



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In short, depositories and custodians share many of the same functions and are often referred to in a similar context. When considering a custodian vs depository account, the answer will often depend on what your investment goals.

As mentioned above, this is particularly true if you want a retirement account that allows you to leverage alternative investments, or those other than stocks, bonds, etc.

Depositories exercise more control over client accounts. And though many offer custodial services, they are not approved by the IRS to manage self-directed IRA accounts. Instead, self-directed investors must open an IRA account with a custodian. A true custodian like Horizon Trust will give you the power to invest in alternative options while maintaining the support and oversight of a well-regulated trust.


Choosing the right custodian for your Self-Directed IRA: A Checklist


There’s no shortage of custodians, but that doesn’t mean they are all created equally. Here are some tips to help you find the right one.

  • Look for flexible fees. Fees are a part of investment services, but that doesn’t mean fee schedules should be one-size-fits-all. Look for a custodian who offers customized fees based on your investment strategy
  • Choose custodians that have a team of knowledgeable staff with experience in self-directed investments
  • Make sure that any custodian you are considering is bonded, insured, and regulated by the IRS.
  • Read reviews, contact the trust via phone or in person, and take a tour of their website. A good custodian will offer quality customer service and the support and resources necessary to make informed investment decisions.
  • Review investment options and make sure that they align with your intended retirement strategy.

A self-directed IRA can offer you the flexibility and control to leverage both traditional and non-traditional investment strategies.

If you’re considering this type of retirement fund, then you’ll need to work with a trusted custodian. Have more questions? Learn more about how you can plan your retirement with Horizon Trust by your side.