Landlord's guide to deposit protection schemes

A deposit protection scheme is a legal requirement that safeguards tenants’ security deposits during their rental period. 

If you rent out your property on assured shorthold tenancies, you may be legally required (external link) to use a government-approved deposit protection scheme. 

You and your letting agent must place the tenant’s deposit in the scheme within 30 days of receiving it, telling the tenant how the deposit is protected.¹  (external link)

Deposit protection schemes are designed to protect tenants’ deposits if they: 

• Comply with tenancy agreement terms
• Pay the rent and bills
• Keep the property in good condition without damage. 

Once you and your tenant have agreed on how much they’ll get back, you must return the deposit within 10 days.² (external link)

The following schemes are available for properties in England and Wales: 

• Deposit Protection Service (external link)
• MyDeposits (external link)
• Tenancy Deposit Scheme (external link) 

Scotland (external link) and Northern Ireland (external link) have separate schemes. 

There are two types of deposit protection schemes: custodial and insured. 

Custodial schemes 

Custodial scheme providers hold the deposit for free during the tenancy. Neither landlord nor tenant can access it until the tenancy ends. 

An independent party oversees deposit returns. 

At the end of the tenancy: 

• If both parties agree on any deductions, the scheme releases the money.
• If there’s a dispute, the scheme holds the money until it’s resolved through their – usually free – independent dispute resolution service. 

Insured schemes 

Insured scheme providers don’t hold the deposit – the landlord or their letting agent keeps it but pays a fee to insure it. The scheme provider guarantees that the tenant will be refunded if the landlord fails to return the deposit properly. 

Like custodial schemes, an independent party oversees the deposit returns. 

At the end of the tenancy: 

• If both parties agree on any deductions, the landlord returns the money directly.
• If a dispute arises, you or the letting agent must give the deposit to the scheme providers until the issue is resolved through their – usually free – independent dispute resolution service.³ (external link)

Deposit protection schemes are designed to promote trust and fairness in the rental market, which can benefit both landlords and tenants. 

There are various advantages to these schemes: 

• Deposit security: The deposit is protected – it is either safely held or insured – until any issues are settled.
• Transparency: Both parties know where the deposit is held – landlords are legally required (external link) to tell tenants about the scheme they are using.
• Standardised returns process: There is a clear process for deposit returns – both landlord and tenant must agree on the amount to be returned, which is then reviewed and approved by the scheme provider.
• Reduced risk of unjust deductions: Any disputes are handled by an independent mediator – helping ensure the deposit is fairly returned at the end of the tenancy.