Deposit Protection Schemes: a Guide to Custodial & Insured Security Deposits

Two Kinds of Deposit Protection Scheme

There are two kinds of scheme that landlords can use to register a rental security deposit: custodial and insured.

The main difference between them is simple. Under a custodial scheme, the money is held by the scheme provider; under an insured scheme, the landlord can keep the money in their own bank account during the tenancy.

Custodial Deposit Protection Schemes

Under custodial schemes, the landlord (or their agent) collects the security deposit money from the tenant, and then registers the money with a government-approved deposit protection scheme.

Once registered, the scheme provider takes custody of the money. They hold it for the duration of the tenancy, not releasing until either:

  • Both parties agree on the amount to release to each party
  • A tenancy dispute has been resolved

Either the landlord or the lead tenant can initiate a request to repay the deposit, but they must both agree on the deductions to be made. In most cases, the landlord and tenant will agree to the deductions, and then both confirm the repayment arrangement to the provider.

This can now be done online, via a portal to which both the landlord/agent and lead tenant are given logins.


All government-approved providers of tenancy deposit protection schemes offer a free, impartial dispute resolution service.

This service is an alternative to using the courts, and is therefore an Alternative Dispute Resolution service (ADR). You can refer your dispute to the scheme and their adjudicators will make a decision based on the evidence provided by the tenant and the landlord.

The adjudicator’s decision is final. If you don’t want to use you scheme’s ADR service, you can also take the dispute to court, although this is usually not recommended due to the time and expense this can require.

Insured Deposit Protection Schemes

Insured schemes work differently both before and after repaying the deposit.

Under insured schemes, the landlord (or their agent) collects the security deposit money from the tenant. Instead of paying this money to the scheme provider, however, they can keep it in their bank account, and simply register that they have taken the money with the provider.

This allows the landlord to accrue interest on the money for the duration of the tenant. This makes insured schemes an attractive proposition for landlords with expensive properties, large portfolios or long contract terms.

The trade-off is that landlords have to pay a small premium to the scheme provider. How small? For example, insured deposit scheme provider My Deposit charge landlords £26 for deposits over £500.

The repayment process is also different, since the landlord already has the security deposit in their accounts at the end of the tenancy. With insured schemes, landlords are free confer with the tenant, agree deductions and then return the deposit to the tenant without involving their provider.


If there is a dispute, then the landlord needs to involve the scheme. They must pay the disputed amount to the scheme provider – not the whole deposit. An example to illustrate:

A landlords wants to deduct £200 from a £1,000 deposit registered with an insured scheme. The tenant disputes £100 of the deductions. In this case, the landlord should repay the tenant the undisputed £800, then pay £200 to the scheme. The scheme will then arbitrate and determine the appropriate repayment of the remaining £200.

The dispute then proceeds in the same manner as that described for custodial deposits. The tenancy deposit  protection provider will offer both parties their free ADR service. An adjudicator will assess the evidence and determine the appropriate repayment of the disputed sum.

Custodial vs Insured Schemes Comparison Table

Custodial Insured
Deposit held by Scheme provider Landlord
Cost Free Small fee
Landlord/Agent must provide prescribed information Yes Yes
Can return agreed deposit without involved scheme No Yes
Must involve scheme with disputes Yes Yes
Free alternative dispute resolution Yes Yes
Dispute decision is final Yes Yes

A Note about Prescribed Information

In both kinds of scheme, the landlord/agent must supply the tenants with legally prescribed information about their deposit and how it is being protected. You get access to the information pack, and instructions on how to serve it to your tenants, when you register your deposit.

You will have 30 days from when the tenants pay the deposit to register it and provide them with the prescribed information. Both parties must sign the information and you should keep a copy.

In OpenRent’s Rent Now tenancy creation service, we do all of this for you, making sure you set up your tenancy on a sound legal footing!

Which Deposit Scheme Does OpenRent Use in Rent Now?

In Rent Now we protect your deposit in the DPS’s custodial scheme well within the 30-day time period. We send the tenants the prescribed information for them to sign, helping the tenancy start off on a sound legal footing.

Why a Tenancy Deposit Must Be Five Weeks’ Rent or Less

The Tenant Fees Act 2019 has capped tenancy deposits at a 5 weeks’ rent maximum. Any deposit payments made over 5 weeks’ rent while setting up a new tenancy will be considered ‘prohibited payments’, which can incur a large punative fine for the landlord.

Click here for a full guide to the Tenant Fees Act.

If you are renewing a tenancy that has a deposit over five weeks’ rent, then the landlord will need to refund the deposit amount over five weeks’ rent. E.g. if the weekly rent is £100, and the deposit was £700, then the landlord would need to refund £200 before renewing the tenancy to ensure the deposit does not exceed five weeks’ rent.

Landlords can learn how to make a partial deopsit refund here.

Government-Approved Deposit Protection Schemes in the UK

There are three different government-approved providers for each area of the UK.

England & Wales


Northern Ireland

What Counts as Evidence in a Tenancy Deposit Dispute?

Landlords can require deductions for a range of reasons, so a range of evidence can be accepted by ADR process. Some common forms of evidence accepted include: the terms of the contract, bank statements, utility & council tax bills, inventory reports, photographs/videos of the property, email correspondences, cleaning charges, witness statements.

Why You Need to Perform an Inventory

An inventory is when you assess the condition and contents of the property at the start and end of a tenancy, and make a record accompanied by photos. It is usually agreed upon and signed by both the landlord and the tenant at the start of the tenancy.

The inventory is the landlord’s key piece of evidence in subtracting deductions from a tenant’s deposit. Without it, it is very hard to prove that any damage was caused by the tenant during their tenancy, or that any items that were present at the start of the tenancy have gone missing.

11 Replies to “Deposit Protection Schemes: a Guide to Custodial & Insured Security Deposits”

  1. HOw long before the landlord has to pay back the money at the end of the contract? I moved out once and waiting three months before she paid?

    1. Hi Becca, this one is very clear! The landlord has 10 days to return the deposit after you have both agreed the amount to return (i.e. if there are any deductions or not). If you disagree on the deductions, then you can go through the resolution process as described above.

  2. My Letting Agency had our tenants deposit in My Deposits but after the end of the tenancy when we wished to make deductions in response to the inventory and contract, they changed the deposit to TDS custodial scheme without telling us. The tenancy ended on the 24th Jan and the tenant has not yet responded to the deductions, but I now have a long process to go through before I can reclaim my money. I feel the Agency have been unprofessional in only notifying me after the act and after I told them I wanted to make a claim. What is your opinion on this?

  3. Dear Team
    I am considering acting as Guarantor for a group of students sharing an apartment. I have agreed with them that in exchange of acting as Guarantor they will assign the security deposit to be returned to me by the landlord at the end of the tenancy agreement. This provision will be included in the tenancy agreement. Is there any need to also include this provision when registering with the government-approved deposit protection scheme? Thank you in advance for any advise on this query.

    1. Hi Nicole, this sounds like it could be a mandatory payment to a third party being included in the tenancy agreement. If it can be so-construed, then it may be a prohibited payment under the Tenant Fees Act. Another problem is that legally, the deposit money remains the tenant’s throughout the tenancy, even if the deposit protection scheme is registered in the landlord’s name. That means that the money can only be released back to the tenants, whose money it legally remains. Therefore, if you wanted to do have this arrangement (which is certainly unusual) then you might have to have an agreement with the tenants directly, since the tools you seek to use (the tenancy agreement and the deposit schemes) may not allow this arrangement.

      I would consider thinking again about this arrangement, as it seems to be riddled with pitfalls, very unusual and actually doesn’t make much financial sense for even you. You are hoping to receive hundreds of pounds (the deposit) for shouldering the risk of the tenant’s rent payments. But if the tenants don’t pay the rent and they also damage the property, then the landlord can claim the deposit money for this, and then there could easily be no deposit left for you to receive at the end of the tenancy. Plus, if the tenants know they aren’t going to receive the deposit back at the end anyway, why would they take any particular care to ensure it is intact? You could easily end up losing a lot of money.

      So in general, maybe rethink this idea!

  4. Via OpenRent and their rent now facility, I used DPS to secure my tenant’s deposit. Subsequently after 18 months the tenant stopped paying rent and abandoned my property leaving it in an absolute state whilst removing some of my furniture and leaving the remainder in an unserviceable condition. I tried unsuccessfully to obtain the deposit from DPS but after adjudication, contested with no evidence by the tenant only her word, they have declined to make a decision. I have been advised to seek a court order to inform DPS to release the deposit to me. I am after any advice as to how to proceed with this process. I’m hoping the cost is minimum due to the expense I have already incurred putting the property back to a habitable state.

  5. Hello, can someone please clarify something for me.
    My tenants have decided to leave and informed me on the 20th Jan 2020 and have said they have will leave by 31st Jan 2020. Does this mean that due to lack of notice I am entitled to keep the deposit? The final inspection will be carried out on the 31st and will have to check for any damages.
    Kind regards

    1. Hi Annah, it depends on many factors. Were they within a fixed term? Or had the contract become periodic? Was it a monthly tenancy? How much notice were they required to give before ending the tenancy?

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