CDP vs Custodian account: Which is better for Singapore investors?

By Beansprout • 15 Jun 2023 • 0 min read

Wondering what is the difference between a CDP account and custodian account? We explore the advantages and disadvantages of a CDP account and a custodian account, and help you decide which one to choose.

CDP vs Custodian account

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What happened?

If you are looking to start investing in Singapore, one of the first things you will need to do is to open up a stock trading account with a broker.

When it comes to opening a stock trading account, many investors have come to us to ask – how do I decide between a CDP and a custodian account? 

If you are wondering whether to use a CDP or custodian account to purchase Singapore stocks, read on to find out.

What is a CDP account?

A Central Depository (CDP) account is operated by the Singapore Exchange (SGX), and acts as a secure storage for any stock listed on SGX that you own. 

Apart than stocks, the CDP account also stores other investments that are listed on the SGX, such as Treasury bills (T-bills) and Singapore Savings Bonds (SSBs).

When you have a stock trading account that is linked to CDP, the stock you have purchased will be held directly under your name and stored in the CDP account. 

What is a custodian account?

A custodian account is an account held under your broker for your stocks.

When your stock is traded via a custodian account, your ownership in the stock will be through the broker, which will hold the shares in CDP on your behalf. 

However, you will remain the ultimate beneficial owner of the stock. 

What is the difference between a CDP and a custodian account?

The key distinction between a CDP account and a custodian account lies in ownership. 

In a CDP account, the stocks are held directly under your name, giving you direct ownership and associated rights. 

In a custodian account, your stocks are held through the broker. 

 

CDP

Custodian

Legal Ownership

● You own the shares directly.

● You will be invited to AGMs and have voting rights.

● Notifications from the company are sent directly to you.

● Dividends are credited to your specified bank account.

● You own the shares through the broker

● You will have to relay your voting preferences and AGM attendance through your broker.

● The broker relays information to you.

● Dividends are paid to the broker and redistributed to you.

Buying and Selling

●Securities are held in a centralized location.

●Can buy and sell through any trading account that is linked to your CDP, although transfer fees may apply and transfer may not be immediate

●Stocks held under custodian accounts of respective brokerages.

● Can only sell and buy through the same broker.

Fees and Charges

● Generally higher trading fees.

● Other clearance and trading fees are chargeable

● Typically lower trading fees.

● Other fees and charges such as custody fees vary between brokers.

 

What are the advantages of a CDP account compared to a custodian account?

#1 - Direct ownership of security

When you own a Singapore stock through a CDP account, you will be a full-fledged stock owner with all the perks that come with it.

That means you'll have the right to attend Annual General Meetings (AGMs) and vote on important matters affecting the company.

Also, you will be notified directly of any notifications such as rights issues, dividend reinvestment plans, rather than through your broker.

If you are using a custodian account, your stocks will be held through the broker. You'll need to rely on your broker for updates on corporate action, as well as the opportunity to attend the Annual General Meeting (AGM).

#2 – Greater security

In a CDP account, the shares are held directly under your name. That means that even if the broker you use goes bankrupt, your shares are still safely held by CDP and remain unaffected.

If you are using a custodian account and the broker faces financial difficulty, it may take some time to recover your assets even if the broker has taken precautions to safeguard your shares and ensure that they are segregated from the company's own funds and assets. 

#3 - Flexibility to change brokers

With your CDP account, you will not be tied to any one broker, so you can buy or sell shares through any broker you choose.

You can buy shares with one broker and sell them through another broker as long as they are linked to your CDP account. 

However, do note that while you have the flexibility to change brokers, it may take time for your shares to be transferred between brokers and there may be transfer fees involved

#4 – Consolidated view of securities holdings

CDP issues monthly account statement to detail your holdings and the dividends you’ve received.This can be helpful for investors who would like to keep track of their portfolios in a meticulous way. 

Your CDP account will also stores other securities such as your SSB and T Bills. By linking them up with SGFindex, you will be able to have a more complete picture of your portfolio and financial health. 

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#5 – Participate in the Securities Borrowing and Lending programme

When your stocks are held in a CDP account, you can participate in securities lending and potentially earn a fee by lending out your stocks. 

What are the disadvantages of a CDP account compared to a custodian account?

#1 - Higher transaction and commission fees

The main downside of a CDP account is the higher commission fees. These fees can potentially erode the returns of your investments. 

It might also be worth noting that for a custodian account, there may be additional fees and charges apart from the commission fees. For example, some brokerages may charge a custody fee. Tiger Brokers charges $2 + GST for accounts that do not have any trades in that quarter.

For a full list of fees for CDP and custodian accounts, refer to our broker comparison review. 

Will I be eligible to vote in the AGM by holding on to my stocks under a custodian account?

If your shares are held in a custodian account, you won't have the direct ability to vote in a company's general meeting. 

However, it might still be possible for you to exercise your voting rights as a shareholder. Some brokers may allow you to indicate your voting preference as a beneficial shareholder.

Will I be eligible for corporate action (eg rights issue) by holding on to a custodian account?

Your broker will process and notify you as an entitled shareholder when there are any corporate actions, such as rights issues. 

You can then subscribe to these rights issues via the brokerage.

What happens when the broker goes bankrupt when I hold on to a custodian account?

According to the Securities and Futures Act (SFA), brokerage firms must keep customer assets in a trust account separate from the firm’s assets. 

The custodian account is administered by a large and reputable financial institution to safeguard your investment. 

In the event that the brokerage faces financial difficulties, these assets will be excluded from claims from creditors, hence there will be a layer of protection for you as a customer. You will remain the rightful owner of the share and you can potentially transfer the shares to another broker.

Final verdict on CDP vs Custodian Account: Which should I use and why?

There are advantages and disadvantages to both CDP and custodian accounts, which may make choosing one over the other difficult.

If the cost of investing is important to you, then a custodian account offers lower trading commissions compared to a CDP account. A CDP account may also offer some investors a greater peace of mind as the securities are held directly under their names. 

If the ability to attend AGMs are important to you, then a CDP account can offer you more shareholder rights.

How do I open a CDP account?

This may apply for your Individual CDP Securities Account using Myinfo, or through an online form. Click on the link here to apply for your CDP Securities Account! 

You can apply for a CDP account if you are 18 years old and above. There are no fees charged by CDP for account opening or maintenance. 

To start buying or selling with CDP, you need to first link your CDP account with a trading account by filling up an account linkage form here. Once completed, your broker will handle the submission to CDP on your behalf.

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