Deposit protection schemes: FAQs
Landlords operating an assured shorthold tenancy are required to register their tenancy deposits into a government-backed protection scheme. There are three government-approved protection schemes, each offering custodial and insurance registration options.
There are serious consequences for failing to handle tenancy deposits properly. If a deposit is not registered in a scheme according to the prescribed process, tenants may be able to claim up to three times the value of the deposit in damages, and any notices to regain vacant possession under Section 21 may be invalidated.
Read our guide below to learn more about deposit protection schemes.
What is a deposit protection scheme?
Under the Housing Act (2004), a deposit protection scheme is a government-approved deposit arrangement service that protects a tenant’s deposit until the end of the tenancy. The landlord must register the tenancy deposit within 30 days of receiving it. At the end of the tenancy, if the tenant fulfilled all their obligations under the tenancy agreement, paid the rent and bills, and did not create substantial damage to the property, their deposit will be given back.
The three government-approved deposit protection schemes for England and Wales are Deposit Protection Service, My Deposits, and the Tenancy Deposit Scheme. All three schemes offer custodial and insurance options, with specific monthly fees for the insured protection plan varying by agency.
Created in 2007, the Deposit Protection Service is the largest deposit protection scheme in the UK. Also created in 2007, MyDeposits is the only scheme approved by the National Landlords Association. The Tenancy Deposit Scheme is the oldest deposit protection scheme, founded in 2003. It is the only one out of the three run by a non-profit organisation.
What is the difference between a custodial and insurance scheme?
All three government-backed protection schemes offer custodial and insurance options. The custodial scheme protects a tenant’s deposit for free and holds the funds in their own account. Insured schemes collect a fee from the landlord to protect the tenant’s deposit while the landlord holds the funds in their own account. By holding onto the deposit in their bank accounts, landlords can accrue interest on the deposit. Landlords with multiple properties may choose to protect all of their deposits in this way as the amount of interest they can accumulate may be significant.
Both custodial and insured schemes, by all three protection providers, provide alternative dispute resolution services for tenants and landlords who disagree over the amount of deposit to be returned at the end of the tenancy.
How much does a tenancy deposit scheme cost?
Custodial schemes are free to use. Insured schemes will vary by provider and total deposit amount. For example, in MyDeposits, a standard pay-as-you-go plan for deposits under £500 is £20 and for deposits over £500 is £27.20 (chargeable whenever you take a new deposit). Discounted prices are also available for members of the National Residential Landlords Association. The Tenancy Deposit Scheme offers annual subscriptions as well and starts its insured plan at £18.50.
How do I register with a scheme?
To register for a deposit replacement scheme, you must make an account with one of the three government-approved deposit schemes on their respective websites. The Deposit Protection Service, My Deposits, and Tenancy Deposit Scheme provide detailed directions on how to make an account and register a deposit.
What are the rules for handling deposits?
Landlords must register a deposit within 30 days of receiving it. Under the Tenant Fees Act, security deposits have been capped depending on the sum of annual rent. For properties with an annual rate of under £50,000, the maximum deposit amount that can be requested is five weeks’ rent. For properties with an annual rate over £50,000, deposits are capped at six weeks’ rent.
The following information must be provided by landlords within 30 days of receiving the deposit as well:
- Address of property
- Deposit amount and protection scheme used
- Contact information for deposit protection scheme agency
- Contact information for the scheme’s alternative dispute resolution department
- Contact information for landlord
- Reasons why the deposit would be held back
- Instructions on how to apply for deposit refund at the end of tenancy
- How to go about deposit refund if landlord cannot be reached
- How to go about any potential deposit disputes at the end of tenancy
These details are usually included in the scheme leaflet and the deposit prescribed information (for more information see our general guide to tenancy deposits).
What role do the schemes play when it’s time to release the deposit at the end of the tenancy?
Tenants can request their deposit directly from their protection scheme agency if the deposit is held in a custodial scheme. If the landlord protects the deposit with an insured scheme, tenants can request their deposit directly from the landlord.
Deposit protection schemes also assist in the arbitration process for deposit disputes (i.e. where the landlord and tenant disagree on the amount of deposit to be deducted due to damages). Alternative dispute resolution services are included in your scheme’s service. In cases where arbitration is necessary, an adjudicator will determine the validity of each party's respective claims while looking over relevant evidence. Although the adjudicator’s decision is final, in extreme cases, a tenant or landlord could also go to court to litigate their claim.
What happens if I don’t register the deposit?
In the event a landlord does not register a deposit, tenants can report the situation to the county court. Usually the court will require the landlord to repay the deposit to the tenants or order the landlord to put the deposit in a custodial tenancy deposit scheme’s account within the next 14 days.
In some instances, the court may order the landlord to repay the tenants three times the original deposit amount. At the end of the tenancy, the court may also decide tenants do not have to leave the property if their landlord did not properly abide by the tenancy deposit scheme requirement.
How do I know which scheme is best for me?
The specific deposit protection scheme you choose is entirely dependent upon personal preference. Custodial schemes protect your tenants’ deposits for free while insured schemes allow you to hold onto the deposit in your bank account, for a small fee. Some landlords prefer the insured scheme as they can accrue interest on the deposit over the length of the tenancy.
Comparing the three government-approved deposit schemes may help you decide which one is the best for you. For insured schemes, compare and contrast fee rates. Reading reviews about the schemes and listening to other landlords’ first-hand experiences with the schemes can also help you decide what scheme is best for you.
Are there any alternatives?
Deposit replacement schemes are an alternative option to deposit protection schemes. In the replacement scheme, with the landlord’s agreement, tenants pay a smaller, non-refundable fee to an insurance provider before the start of the tenancy. Compared to traditional deposits, replacement schemes can provide tenants with more financial flexibility as the upfront move-in cost is reduced.
Deposit protection schemes provide both tenants and landlords with peace of mind regarding tenancy deposits and assist both parties during any potential deposit dispute. Depending on the scheme the landlord chooses, the deposit may either be held by the government-backed scheme for free or by the landlord, for the price of a small subscription fee. All three schemes provide broadly comparable levels of service, and the best scheme for you will depend on personal preference.
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