What is a Tenancy Deposit Scheme?

17th August 2022

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If you’re a landlord then, by law, you are responsible for registering your tenant’s deposit in a government-approved tenancy deposit protection scheme. However, plenty of landlords don’t know what these are or how they work. We’re here to help…

What is a tenancy deposit scheme UK?

Under Chapter 4 of the Housing Act 2004 you are not allowed to simply put your tenant’s deposit in your bank account. By law, you are obliged to use a tenancy deposit scheme to safely register the money. This protects the tenant, ensuring they get their money back at the end of the tenancy assuming they:

• Meet the terms of the tenancy agreement
• Do not damage the property
• Pay their rent and bills

You or the letting agent must register the tenant’s deposit within your chosen scheme within 30 days of the tenant’s payment.

The exception to this rule is if you are not letting your property on an assured shorthold tenancy. In this case you may hold the deposit in your own account and there is no need to register it. You are also free to request a higher amount or even goods in kind.

Who provides tenancy deposit schemes?

If you are letting property in England or Wales you have three government-approved scheme providers to choose between:

• Deposit Protection Service
• MyDeposits
• Tenancy Deposit Scheme

Which tenancy deposit scheme should I choose?

There are two types of tenancy deposit scheme: insured, and custodial.

Insured deposit protection schemes

• Free to join but you pay insurance premiums to protect the deposit
• You personally hold the deposit in your bank account
• You keep any interest
• You repay the deposit to the tenant at the end of the tenancy (with any agreed deductions)
• If there are disputes, the scheme will provide a free dispute resolution service

Custodial deposit protection schemes

• Free to join
• The scheme holds the money
• They repay the tenant at the end of the tenancy (with any agreed deductions)
• If there are disputes, the scheme will provide a free dispute resolution service

Your basic choice is to decide whether you’d like to look after the money yourself or prefer to hand over the responsibility to someone else.

Tenancy deposit scheme costs

For insured tenancy deposit schemes, you pay insurance premiums to protect the money. However, the deposit is held in your own bank account and you get to keep any interest.

For custodial tenancy deposit schemes there are no fees. On the other hand, the money is held by the scheme and you will not gain any interest.

Holding deposits

Usually prospective tenants will give you a holding deposit to stop you letting the property to anyone else before the paperwork is signed. You don’t have to put this money in a tenancy deposit scheme. However, once they become a tenant, this money is usually converted to a deposit and must be registered with a scheme.

Find out more

As estate agents and letting agents, we have worked with landlords for many years, helping them through every stage of the letting process. Whether you’d like us to step in, collect the deposit and place it in a tenancy deposit scheme, or if you simply have a few questions, please get in touch. Our knowledgeable, approachable team will be happy to help.