A trust account is an account that a trustee holds on behalf of a beneficiary. The trustee has a legal responsibility to manage the account in the beneficiary’s best interests. In contrast, a savings account is an account that an individual holds in their name. The individual has complete control over the account and can withdraw funds.

Eligibility

You can only open a trust account if you are appointed as a trustee by a will or deed. You must be at least 18 years old and have the mental capacity to understand your responsibilities. You don’t need to be a citizen or resident to open a trust account. Savings accounts can be opened by anyone, an Australian citizen or resident.

Purpose

The purpose of a trust account is to hold funds for the benefit of a third party. The trustee has a legal responsibility to use the funds in the beneficiary’s best interests. An individual typically uses a savings account to save money for personal use.

Taxation

Trust accounts are taxed at the trust rate, which is currently 30%, meaning that any income earned on the funds in the account will be taxed at 30%. Savings accounts are taxed at the individual’s marginal tax rate, which could be anywhere from 0% to 45%

Access to Funds

The trustee of a trust account has a legal responsibility to use the funds in the beneficiary’s best interests. It also means that they may need to get approval from the beneficiary before accessing the funds. By contrast, the individual who owns a savings account has complete control over the account and can withdraw funds.

Minimum Balance

There is no minimum balance required for a savings account. However, trust accounts typically require a minimum balance.

Fees

Trustees are typically charged an annual fee by the financial institution where the trust account is held, covering the costs of administering the account. Savings accounts may also be charged fees, such as monthly service fees or transaction fees.

Interest Rates

The interest rate on a trust account will depend on the terms of the trust deed. Comparingly, the interest rate on a savings account will depend on the type of account and the financial institution.

Reporting Requirements

Trustees are required to prepare an annual report detailing the income and expenditure of the trust fund. They should provide this report to the beneficiaries. There are no such reporting requirements for savings accounts.

Benefits

Beneficiaries of trust accounts can claim certain tax deductions, such as the costs of managing the trust. Savings accounts offer no such benefits.

Risks

Trustees have a binding responsibility to manage the trust fund in the best interests of the beneficiaries. If they breach this responsibility, they may be held liable for any losses incurred by the beneficiaries. There are no such risks associated with savings accounts.

What are the similarities between the two accounts?

Financial institutions hold both accounts

Financial institutions such as banks, credit unions and building societies offer trust accounts and savings accounts.

Both accounts earn interest

Both trust accounts and savings accounts earn interest on the funds deposited into them. The interest rate will depend on the terms of the account and the financial institution.

Both accounts have restrictions on withdrawals

Withdrawals from both trust accounts and savings accounts may be restricted by the terms of the account or by the financial institution. For example, some accounts may require you to give notice before making a withdrawal.

Both account balances can fluctuate

The balance in both trust accounts and savings accounts can go up or down depending on the interest rate, fees, charges and withdrawals.

Investors can use both to save money

Individuals, businesses or other entities can use both trust accounts, and savings account to save money. The funds in the account can be used for any purpose permitted by the account’s terms.

Both accounts are regulated by law

Trust accounts and savings accounts are both regulated by law, meaning that there are specific rules that financial institutions must follow when offering these accounts. For example, the Financial Services Reform Act 2001 (Cth) sets out the requirements for trust accounts.