No matter if you’re new to renting out a property or have been a landlord for years, getting to grips with tenancy deposit protection is a must. It’s not just a legal box to tick, it’s also a great way to build trust with your tenants and keep everything running smoothly from day one.
In this guide, we break down deposit protection schemes, from the basics of why they’re required to how you can choose between custodial and insurance-based options.
What is tenancy deposit protection and why is it required?
Tenancy deposit protection is about giving everyone peace of mind. It’s there to make sure a tenant’s deposit is kept safe and handled fairly throughout the tenancy. If you’re letting a property on an assured shorthold tenancy and taking a deposit, you’ll need to register it with a government-approved tenancy deposit scheme.
You’ve got 30 days from receiving the deposit to get everything sorted. During that time, you’ll also need to share a few details with your tenant, like which scheme you’ve used, how they’ll get their deposit back, and what might be deducted at the end of the tenancy.
Following these steps keeps things clear and stress-free for both sides and helps avoid any bumps further down the line.
Related: Rent collection: DIY vs. letting agents
Custodial vs. insurance-based schemes
There are two types of approved landlord deposit schemes: custodial and insurance-based. Both meet legal standards, but how they function is different.
Custodial tenancy deposit scheme
With a custodial deposit scheme, you transfer the deposit to the scheme provider, who holds the money in a secure account for the duration of the tenancy. It’s free to use and particularly popular among landlords managing a small number of properties.
- No fees involved
- Deposit is held independently
- Disputes are resolved by the scheme
This option also reduces liability, as the funds are not held in your own account.
Insurance-based deposit scheme
The insurance deposit scheme allows you to retain the deposit in your own account, but you pay a fee to insure it. This confirms that if you fail to repay the deposit when required, the scheme can reimburse the tenant and recover the funds from you.
- Deposit stays in your account
- Scheme provides insurance cover
- Annual or per-tenancy fees apply
This approach offers more flexibility and is often preferred by professional landlords or letting agents who are confident managing tenant finances.
Key benefits of using a landlord deposit scheme
Protecting deposits through a recognised scheme isn’t just about compliance, it also improves transparency and reduces the potential for disputes.
Benefits include:
- Independent dispute resolution
- Legal protection for both parties
- Improved trust and professionalism
- Clear framework for deposit deductions
Tenants are more likely to feel secure renting from landlords who use a proper deposit protection scheme, and it reflects positively on your reputation as a responsible property owner.
Common mistakes landlords make
Even experienced landlords can occasionally misstep. These are the most frequent errors when it comes to deposit protection:
- Missing the 30-day deadline: Protecting the deposit late still counts as a breach.
- Failing to issue prescribed information: Tenants must be informed in writing about where and how their deposit is protected.
- Not using a recognised scheme: Holding the deposit in a personal or business account doesn’t meet legal requirements.
Avoiding these pitfalls can save you from financial penalties and the stress of legal challenges.
Related: What is periodic tenancy?
Why longer tenancies matter
Many landlords focus on finding long-term tenants not just for income stability, but because longer stays often result in better property care. Tenants who stay in a rental property for multiple years tend to treat it like a home, reducing wear and tear and improving upkeep. Offering flexible rental terms or the option for longer agreements can help attract these tenants.
Related: How to encourage a long term tenancy?
Choosing the right scheme for your needs
Whether you opt for a custodial tenancy deposit scheme or an insurance-based deposit scheme, the key is to choose the one that aligns with your management style. If you want hands-off handling and minimal risk, custodial might be best. If you value flexibility and are confident with the responsibilities involved, an insurance-based option gives you more control.
Either way, ensuring your tenants’ deposits are protected according to legal requirements is essential for your success as a landlord.
Keeping things simple (and protected)
A secure, well-managed deposit process isn’t just a legal tick-box, it’s a smart move for everyone involved. It protects your investment, keeps tenants reassured, and helps things run smoothly from start to finish. Whether you go for the ease of a custodial scheme or prefer the flexibility of an insurance-based option, staying on top of your responsibilities makes all the difference.
For further guidance, your local Ellis & Co team is here to help with advice tailored to your property and portfolio.
