Safekeeping: Definition, Methods, Example

What Is Safekeeping? 

Safekeeping, also known as safe keep, is the storage of assets or other items of value in a protected area. Many individuals choose to place financial assets in safekeeping. To do so, individuals may use self-directed methods of safekeeping or the services of a bank or brokerage firm. Financial institutions are custodians and are therefore legally responsible for any items in safekeeping.

  • Safekeeping is storing assets or items of value in a safe area, such as with a custodian or financial institution.
  • Assets placed in safekeeping generally come with a safekeeping certificate.
  • Firms may hold stock or bond securities, physical valuable, or documents in safekeeping, although an investor may also hold their own valuables in safekeeping, possibly renting a safe-deposit box.
  • Custodians generally hold valuables for investors, while a depository can assume additional control, liability, and responsibility for the items.

Understanding Safekeeping

Individuals who place an asset in safekeeping—often with a bank trust department—generally receive a safekeeping certificate. These receipts indicate that the asset of the individual does not become an asset of the institution and that the institution must return the asset to the individual upon request. An institution will often require a fee for these services.

Many who invest with brokerage firms have their stock or bond securities held in safekeeping. In addition, firms may hold other valuables (gold, jewelry, rare paintings) or documents, including the actual, physical securities certificates. In this capacity, a brokerage firm acts as an agent for a customer.

On the other hand, if the investor wishes to keep their own securities certificates separately, they may rent a safe-deposit box. In both cases, the firm will often provide an overview of the value of the asset(s) over time and can present options for buying and selling the assets.

Special Considerations

While many use the terms interchangeably, custodians usually simply hold securities and other valuables for investors, while a depository can assume additional control, liability, and responsibility for the items.

Depositories may delegate custodian tasks (selling, repurchasing, issuing) to third parties, provide additional financial services, and facilitate the key function of transferring the ownership of shares from one investor's account to another when a trade is executed. Depository services can also entail offering checking and savings accounts, and transferring funds and electronic payments in these accounts through online banking or debit cards.

Some custodians do also offer a range of other services, such as account administration, transaction settlements, collection of dividends and interest payments, tax support, and foreign exchange.

Using a depository or custodian can also eliminate the risk of holding securities in physical form (e.g. from theft, loss, fraud, damage or delay in deliveries). Some of the largest custodians globally include the Bank of New York Mellon (BNY), State Street Bank and Trust Company, JPMorgan Chase, and Citigroup.

Example of Safekeeping

Investors that purchase fixed income securities via their Wells Fargo Securities account can have Wells Fargo Bank hold the securities in safekeeping, for a fee. Securities are held in a Wells Fargo Bank safekeeping account, which is also charged an interest rate.