As a tenant, if you’re starting a new tenancy, it’s likely that you will pay a deposit. A deposit is a form of security for your landlord, in case there’s damage that needs to be repaired, or if there’s an outstanding balance at the end of the tenancy.
In the UK, deposits taken for an assured shorthold tenancy (AST) that started on or after 6th April 2007, have to be protected with one of the government-approved schemes. Not doing so can result in court action from the tenant, and the landlord loses the right to a section 21 eviction.
There are 3 government-approved schemes in England and Wales, which can be used. If it’s not an AST, then your landlord can accept other items as a deposit, such as something of value. However, these can’t be protected by these schemes.
What’s the deposit for?
The deposit is held by a scheme to help provide an impartial service should there be any disputes.
If there is a dispute between the tenant and the landlord, then your deposit is protected by the scheme until the issue has been resolved.
What about a holding deposit?
A deposit paid to hold a property (e.g. before an agreement is actually signed, but the property taken off the market), doesn’t need to be protected.
If you proceed and sign an agreement for a tenancy, then the holding deposit becomes a deposit. At this stage, it needs to be protected.
Any deposits that need to be protected, need to be done within 30 days of the start of the tenancy.
What schemes are available?
Let’s take a look at the schemes covering England and Wales (Scotland and Northern Ireland will follow).
Deposit Protection Service (DPS)
DPS Facebook Cover Image
The DPS is the largest scheme of its type in the UK and has been running since 2007.
As of July 2021, they’ve protected 7.2m deposits, and boast that they’re the original government approved custodial scheme.
They provide their custodial deposit protection free-of-charge and competitively-priced insured scheme.
The custodial scheme is easy to use -
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Create your custodial account. You don’t need the deposit at this stage, you can add to the account once it’s been created.
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Add the tenancy details now and pay the deposit funds when the time comes.
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The DPS will prepare the prescribed information for you to hand over to your tenants.
Tenancy Deposit Scheme (TDS)
The tenancy deposit scheme Facebook cover image
The Tenancy Deposit Scheme was established in 2003 and is the longest-serving government-approved deposit protection scheme.
Similar to DPS, there’s no fee for their custodial tenancy deposit protection service, and operates in a similar way.
The TDS proudly promote themselves as a hassle-free way to protect deposits. With surpluses being invested in improving their award-winning service they are also the only not-for-profit scheme in England and Wales.
Although TDS is for England and Wales, there are versions of the scheme in Scotland (Safe Deposits Scotland) and Northern Ireland (TDS Northern Ireland).
My Deposits
My Deposits Facebook Cover Image
Founded in 2007, My Deposits wanted to give landlords, agents and tenants an alternative to the other two schemes.
As part of the Hamilton Fraser family (insurance), they offer free deposit protection under their custodial scheme; as well as offering insured and replacement deposit protection.
They promote 5 key points for their custodial scheme, some of which is available with the other schemes:
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Free dispute resolution
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Designed for the modern landlord
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Easy negotiation
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Simple compliance
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Transparent experience
Which scheme should you use?
There’s no clear winner on which one to use. Each of them offers its own benefits.
If you’re a landlord, do your research, check out reviews and speak to other landlords too. It’s a good idea to find out about their experiences of each of the schemes to give you a good understanding of what to expect.
Remember - it’s a legal requirement to protect your tenants’ deposit with a recognised scheme, so make sure you do it within the timeframe.