Fiduciary deposit: what is this financial product, its advantages and disadvantages

Increasing capital by placing funds on deposit is a good way to make money for those who, for whatever reason, are afraid or unwilling to invest in more profitable instruments. But the problem with this kind of income is low interest rates on deposits. In order to prevent the depreciation of funds, as well as to save on taxation, a fiduciary deposit is used.

Что такое фидуциарный депозит

What is a fiduciary deposit

In other words, it is a trusted deposit. It involves the anonymous placement of the client’s funds on behalf of a credit institution in another bank. At the same time, the bank or trust company serving the client manages the account on the basis of a power of attorney.

Such a service can be found in almost any bank. The scheme of funds placement is as follows: the agent bank, that is, the bank in which the client has an account, on his behalf transfers all or part of the deposit funds to the recipient bank, that is, to a third-party bank, which in turn undertakes to pay interest to the agent bank.

Let’s say a client of a Swiss bank wants to place his funds in a Russian bank and thus save on taxation or make money on the difference in rates. To do this, he only needs to give an order to the servicing credit institution.

It is noteworthy that the receiving bank considers the incoming flow of funds as an interbank placement, so the name of the owner of the funds does not appear anywhere. Such operations are popular among large capital holders. The average size of a fiduciary deposit is $1 million.

Что такое фидуциарный депозит

What are the advantages of a fiduciary deposit

The first significant advantage of such a deposit can be considered security and confidentiality, which is achieved by depersonalizing the client’s deposit when transferring to another bank. The client’s funds seem to be lost in the total mass of the credit institution’s capital, therefore they are relatively safe.

The second plus lies in the opportunities that open up for the client:

  • opportunities to earn more if the rate of the receiving bank is higher than the rate of the agent bank. It turns out that a fiduciary deposit is a kind of investment with a high income;
  • opportunities to save on paying taxes. A similar principle works here: if the income tax rate is higher in one country and much lower in another, the client can transfer funds to the bank of a state where the tax policy is softer.
  • opportunities to place funds in first-class world banks. This opportunity is of interest both for private clients who do not have a positive history in developed countries, and little-known offshore organizations. In this case, the scheme of placing funds through intermediaries, which can be fiduciary banks or companies, opens access to reputable foreign banks.

В чем преимущества фидуциарного депозита

What are the disadvantages of a fiduciary deposit

The main problem is that a credit institution receiving funds from a client of another bank does not identify them. In other words, a client of a third-party bank is not a client for her. This leads to the main drawback: in case of bankruptcy of the recipient bank, the client’s funds remain without insurance coverage. And even if the agent bank makes a claim in the interests of its client, the arbitration managers will not be able to determine its size. As a result, the bank serving the depositor will be in the queue after all the clients of the recipient bank.

The second point concerns the commissions that the depositor is obliged to pay. The fact is that a fee is charged for fiduciary transactions, the amount of which varies depending on whether the client finds the receiving bank on his own or resorts to the services of an intermediary.

В чем недостатки фидуциарного депозита

And here’s the attention! The percentage of the fee calculated from the amount of profit received by the client may be higher than the deposit rate. In this case, a fiduciary deposit as an investment completely loses its meaning. Therefore, only large amounts are suitable for such an allocation of capital, while it is important to take into account the commission fees of a financial institution.

Published: 16 June, 2022

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