Although I am gradually acquiring more technical knowledge, I realize more and more that I still have a lot to learn. I didn't know that distinction you make. For me until now there was a distinction (in my mind):
-Custodial wallet: not good for your privacy.
-Non-custodial wallet: good for your privacy.
But I didn't know that difference between decentralized and centralized non-custodial wallets, so thanks for that.
I like to think of privacy and (de)centralization in terms of degrees instead of just being black and white (either centralized or decentralized).
For example the decentralized exchanges we see that rely on a company and have a centralized authority taking a fee from each trade aren't fully decentralized but they can't be called centralized either. I would give it a rate of 8 out of 10 for decentralization.
Same with wallets.
For example we have blockstream's green wallet that has a default 2of2 multi-sig setup where you depend on their servers to spend your money, or to sync your wallet the default server is theirs and nothing else. So it can't be called fully decentralized or fully non-custodial or fully privacy-friendly. If the defaults were used all rates will be 0 out of 10.
Electrum in comparison gives you full control over your keys and you don't rely on a single server but it still doesn't provide full privacy. I'd give it 10 for decentralization, 10 for being non-custodial (9 for their multi-sig) but 5 for privacy (can be improved by running Tor or your own server).
People just have to learn the pros and cons of everything they use.