How is a Bank Trust Custodial Account Different?

by Investing School on July 27, 2012

A Bank Trust Custodial Account is an Individual Retirement Account that has been made possible by the ERISA act of 1974. This allows contributions to be paid into the interest-bearing bank account or into a self-directed account.

The goal of this act was to protect pension and retirement plans designed for employees and ensure that they were fair and secure. It was this law that set up rules and regulations that governed private pension plans. This included things like funding mechanisms, plan design, descriptions and even vesting requirements.

The difference between a bank’s interest bearing account and a self directed account is primarily who is making the decisions regarding investment. When you invest in a bank account the institution is in charge of all the investment decisions. A self-directed account is usually set up through a brokerage and is subject to specific fees above and beyond your trading costs but offers more flexibility in how your money is invested.

The clearest advantage in placing money into a interest-bearing bank account is that you don’t have to personally manage the funds. This is a reasonable choice for someone who lacks a basis in investing. On the other hand, at the time of this writing, such account barely offer any interest, and are not a good place to grow retirement funds.

This type of custodial account is different from the type that is set up for a minor who is under the age of 18 or 21, depending upon state law. Such accounts are traditionally set up by the parents or guardians of a minor for investment purposes, usually with the intent that the funds be used for education or for starting out in life.

Promote or Save This Article

If you like this article, please consider bookmarking or helping us promote it!

Print It | Email This | | Stumble it! | Reddit |

Related Posts

{ 0 comments… add one now }

Leave a Comment

Previous post:

Next post: