Introduction
If you’re renting a property in England or Wales, you’ve probably come across the term ‘tenancy deposit protection.’ But did you know there are two main types of deposit schemes—insured and custodial? Understanding the difference between these schemes is essential, especially when it comes to ensuring your deposit is properly protected. In this blog, we’ll explain how both schemes work, the pros and cons of each, and what it means for you as a tenant.
What is a Tenancy Deposit Scheme?
A tenancy deposit scheme (TDS) is a legal requirement for landlords who rent out their property under an Assured Shorthold Tenancy (AST). Landlords must place your deposit in one of the government-approved schemes within 30 days of receiving it. This ensures that your money is protected, and you’ll get it back at the end of your tenancy, assuming you’ve met the terms of your agreement.
What is an Insured Deposit Scheme?
An insured deposit scheme allows the landlord to hold your deposit themselves, but they must pay a fee to the scheme provider for insurance. The scheme provider insures the deposit, meaning that if the landlord fails to return the money when they should, the insurer will cover the amount. The landlord must still follow the rules, and the deposit remains protected even though it’s not physically held by the scheme.
What is a Custodial Deposit Scheme?
In a custodial deposit scheme, the landlord hands over your deposit to the scheme provider, who holds it in a secure account for the duration of your tenancy. At the end of your tenancy, the scheme returns the deposit directly to you or distributes it between you and the landlord if there are any deductions.
Which Scheme is Better for Tenants?
From a tenant’s perspective, a custodial deposit scheme may offer more peace of mind since the deposit is held independently of the landlord. However, both schemes provide protection under the law, and if there’s a dispute, it will be resolved by the deposit scheme provider.
Here’s how to make sure your deposit is protected, regardless of the scheme used:
- Check Your Deposit is Protected: Your landlord must give you details of the scheme they’ve used within 30 days of receiving your deposit.
- Ask for Confirmation: If you’re unsure, ask your landlord for proof of deposit protection. You can also check with the deposit scheme directly.
- Know Your Rights: Whether the deposit is insured or custodial, the scheme provider must hold your deposit until any disputes are resolved.
Conclusion
Both insured and custodial deposit schemes are designed to protect your deposit, but it’s important to know which one your landlord is using. While custodial schemes offer more transparency, insured schemes are just as legally binding. At Tenant Angels, we specialise in helping tenants with deposit protection claims, so if you’re ever unsure about your deposit’s status, get in touch for advice.
FAQ
No, the landlord chooses the deposit scheme, but they must use one of the government-approved schemes.
If your landlord doesn’t protect your deposit within 30 days, you may be entitled to compensation of up to three times the deposit amount.
Yes, both insured and custodial schemes are legally required to protect your deposit. The key difference is who holds the money.
Your landlord must provide you with proof of protection, but you can also check directly with the deposit scheme.
If there’s a dispute, the deposit scheme will act as a mediator and make a decision on how the deposit should be returned or split.
Would you like to find out whether your tenancy deposit was protected correctly?
We specialise in helping tenants make successful compensation claims when your landlord or letting agent has failed to protect your deposit correctly.
The law is very black and white when it comes to deposit protection and states that your deposit must be protected in one of the three government-backed schemes within 30 days of you paying it and it should remain protected until the day you move out.
Claims can be worth up to 3x your deposit, plus the full return of your deposit on top. For example, if you paid a £1,000 deposit, you may be able to claim £3,000 + your £1,000 deposit back.
Use our FREE online eligibility checker to see if you could be owed compensation.
Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice or a client-solicitor relationship. All information, content, and materials available on this website are for general information purposes only and should not be used as the basis for taking any specific course of legal action.
