When investing in your future, one of your first decisions is who to trust with your assets.

Both depository and custodians can help you build a retirement fund, but they must be created equally.

When considering a custodian vs. depository account, it’s important to consider your investment strategy.

This is particularly true if you want to invest in a self-directed IRA (SDIRA), as only custodian accounts can manage your needs.

Let’s go over what each one entails.


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.

These assets may include stocks, bonds, precious metals, and alternative investments like tax liens and real estate.

Here are six key facts about depositories:

  • Examples of depositories include commercial banks, credit unions, and thrifts.
  • Depositories typically have more control over client assets in investment situations.
  • Depository accounts establish a passive relationship between the client and the depository, with the depository making asset decisions based on their judgment.
  • Clients trust the depository to make decisions aligned with their long-term goals and risk tolerance.
  • Depositories maintain liability, especially in traditional banking activities, in the event of a loss.
  • Depositories have a regulatory role, ensuring compliance, participating in auditing activities, and monitoring transactions according to domestic and international laws.



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On the other hand, a custodian plays a primary role in administering SDIRAs.

Their efforts include trade execution and reception, reconciliation, account settlement, reporting, and other account management activities under your custodian account.

Here are five key facts about custodians:

  • Custodians have limited liability compared to depositories.
  • Custodians handle administrative tasks, including account setup, transaction processing, record-keeping, reporting, and executing trades on behalf of the SDIRA account holder.
  • Custodians execute clients’ wishes but do not make investment decisions, so the client is the lead voice in investment strategies.
  • Custodians and depositories share functions such as ensuring compliance with information security and IRS rules and regulations.
  • Like depositories, custodians perform basic due diligence related to financial risk management.

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 often depends on your investment goals.

As mentioned above, this is particularly true if you want a retirement account that allows you to leverage alternative investments 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.

What Are The Differences Between Custodian and Depository Accounts?

The differences between custodian and depository accounts lie in client relationships, responsibilities, and liabilities.

Client Relationships. Custodian accounts involve a more dynamic relationship, where clients lead investment decisions, including buying/selling and asset allocation. Depository accounts, conversely, imply a more passive relationship, with the depository exercising greater control over client investments aligned with the client’s goals and risk tolerance.

Responsibilities & Liabilities. Custodian accounts primarily focus on executing client instructions and hold limited liability on financial assets. If the client incurs losses, custodians may bear little responsibility. In contrast, depositories may take full or partial responsibility for any losses incurred.

Custodians and depositories are responsible for IRS rules and regulations, auditing, research, performance monitoring, and information security. However, specific roles and responsibilities can vary depending on the bank or financial institution and the type of investment accounts managed.

Considering these differences is important when choosing between custodian and depository accounts. Carefully review your financial institution’s terms and conditions to understand custodian and depository roles, responsibilities, and liabilities.

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

When managing your Self-Directed IRA, choosing the right custodian may be one of the most impactful decisions you can make.

To help you choose the right custodian, here are six things to look out for:

Experience. Look for a custodian with an excellent track record managing self-directed IRAs, drawing from third-party reviews and word-of-mouth recommendations from clients. They should be bonded, insured, and regulated by the IRS.

Account Options. Ensure that your custodian supports the specific SDIRA you seek (e.g., Traditional vs. Roth IRA) with or without alternative investment options beyond stocks, bonds, and mutual funds, such as private equity, cryptocurrency, or real estate.

Custodial Fees and Pricing Structure. Look for a custodian who offers customized fees based on your investment strategy. Pay attention to custodian fees, such as account setup, asset transfer, and transaction fees. Consider consulting with a financial professional to assess the reasonableness of the custodial fees.

Compliance. Ensure your custodian is well-versed in IRS regulations and can handle all the documentation associated with your Self-Directed IRA investments. Verify that they can provide the required forms, such as IRS Form 5498 or Form 1099-R, accurately and promptly.

Customer Support. Confirm the level of customer support provided by the custodian. Inquire about the technology platforms they utilize, including online portals, that provide real-time updates on your investments. Over-communication and real-time dashboards are the best way to stay in the mix.

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

If you’re considering this type of retirement fund, 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.

Quick Q&A Recap

How do custodians and depositories differ in their responsibilities?

The main difference in responsibilities between custodians and depositories lies in the control over client assets. Custodians focus on administrative tasks such as account setup and reporting, while they do not make investment decisions. On the other hand, depositories have a higher degree of control and actively make investment decisions on behalf of clients.

What is the liability of custodians and depositories?

Custodians have limited liability when it comes to investment losses compared to depositories. Depositories may be held partially or fully responsible for any losses incurred by clients. It’s important to understand the level of liability and responsibility associated with each institution before making investment decisions.

Can I choose between a custodian and a depository for my investment account?

The ability to choose between a custodian and a depository depends on the financial institution and the type of investment account you wish to manage. It is crucial to thoroughly understand the roles, responsibilities, and liabilities of each option before committing to one. Consider seeking guidance from a financial advisor to make an informed decision based on your specific investment needs.