As a landlord, protecting your tenant’s deposit is not just good practice, it’s a legal requirement. Since 2007, landlords must secure any tenancy deposit in a government-authorised deposit protection scheme within 30 days of receiving it. The two main options are an insured deposit protection scheme and a custodial deposit protection scheme. Here’s what you need to know to choose the right one.
What is an Insured deposit protection scheme?
With an insured deposit protection scheme, the landlord or letting agent holds the deposit in their own account and pays a small fee to insure it. If there’s a dispute, the scheme offers a free dispute resolution service. In insured schemes, you may be required to transfer the disputed amount to the scheme while the issue is resolved.
Key benefits of an insured scheme:
- Landlords and agents hold the deposit, allowing for direct management when returning it.
- This scheme offers greater autonomy for those who prefer to keep control of their finances.
- Agents and corporate landlords are rewarded for low dispute ratios in our Insured Scheme
- Access to free Alternative Dispute Resolution (ADR)
This option is often preferred by experienced landlords or letting agents who want direct oversight and faster returns. However, there’s a small charge for each deposit you protect.
What is a Custodial deposit protection scheme?
A custodial deposit protection scheme requires you to transfer the deposit to the scheme to hold for the duration of the tenancy. At the end of the tenancy, the scheme returns the funds to the landlord and tenant based on their agreement or an adjudication decision.
Key benefits:
- Free to use with no protection fee
- The scheme manages the funds for you
- Transparent and impartial for both parties
- Lower admin burden for landlords
This scheme is ideal for landlords who prefer a hands-off approach and want peace of mind, knowing the funds are safely held by a third party.
Insured vs. Custodial: How to decide
Both schemes meet your legal obligations, but the right one depends on your preferences:
1. Cost
Custodial schemes are free, while insured schemes charge a small fee per deposit. For landlords with multiple properties, insured schemes may offer cost-effective discounts.
2. Control
With an insured deposit protection scheme, you retain control of the deposit throughout the tenancy. This means you hold the funds and manage the return directly at the end of the agreement. It gives you more flexibility, especially if deductions are agreed quickly and amicably. In contrast, a custodial deposit protection scheme holds the money on your behalf, which reduces administrative burden but also means the scheme oversees the release process.
3. Simplicity
Custodial schemes are straightforward and reduce the risk of errors. They’re a great option if you prefer a hands-off approach to deposit protection, with the scheme holding and managing the funds on your behalf.
4. Experience level
Insured schemes may suit seasoned landlords. Custodial schemes are often easier for first-time landlords.
5. Number of properties
Landlords with large portfolios may benefit from insured schemes for cash flow and administrative reasons, while smaller landlords might prefer custodial schemes for their simplicity and zero cost.
Why choose TDS?
The Tenancy Deposit Scheme is the only not-for-profit provider offering both custodial deposit protection schemes and insured deposit protection schemes. This means landlords benefit from great service, not shareholder dividends. TDS also offers:
- Free dispute resolution with an easy-to-use self-resolution platform
- Award-winning support, including 10 years of Customer Service Excellence accreditation, ISO 10002 for customer satisfaction, and an Excellent rating on Trustpilot (4.4/5)
- Tenancy Redress Service, a mid-tenancy mediation service for landlords managing property directly, who encounter mid-tenancy issues and want to rectify and sustain the tenancy without the need for court action.
While all government-authorised schemes meet the legal requirements for deposit protection, the Tenancy Deposit Scheme is often the preferred choice due to its commitment to landlords, agents, and tenants alike. We’re also the only scheme that is backed by the National Residential Landlord Association (NRLA), Propertymark and RICS. With years of experience, access to Agent+ and Landlord+ and a reputation for reliability, TDS ensures your deposit protection needs are met.
Visit the TDS website to explore your options and find the perfect deposit protection scheme for your tenancies.
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