Is A Free Tenancy Deposit Scheme The Best Option?

pound notes and coins, paying in cash for deposit scheme
Table of Contents

As a landlord, you are obligated to protect tenants’ deposits. That sounds like stating the obvious. But did you ever wonder what are your options when it comes to protecting the deposit?
There are three government-authorised schemes in England:

The most important rules when dealing with tenants’ deposit

-Maximum amount of deposit should not exceed the equivalent of 5 weeks rent, or 6 weeks if annual rent is over £50,000
-Tenants’ deposit should be protected within 30 days from receiving the payment

The first deposit option is DPS

DPS is the largest scheme that offers two types of deposit protection – custodial and insured schemes. On the market since 2007.

Custodial deposit

The custodial deposit scheme is free, and money is secured with DPS. It is also very easy to use their service. From creating an account to adding tenants’ deposits. All forms are straightforward and self-explanatory. They will also prepare a form to send to a tenant and repay the tenant’s deposit at the end of the tenancy.

Insured deposit

The insured deposit scheme is a different type of service provided by DPS. That one is charged with extra cost. If the tenant’s deposit amount is £500 or less then it is a one-time fee of £18.75, or if the tenant’s deposit amount is over £500 the fee is £27.75.

You pay the small fee for each deposit for the whole duration of the tenancy and the money stays in your account, however, you cannot use them. Also, in order to be able to use this deposit scheme you also have to be registered with the Client Money Protection Scheme.

End of tenancy

DPS deposit scheme also assists with disputing resolutions at the end of tenancy no matter which scheme you are using.

The next option listed by the government is MyDeposit

MyDeposit is another deposit scheme, which provides a couple of deposit options – custodial, insured and deposit replacement.

Custodial deposit

Very similar to the DPS offer, there is no additional charge. The only thing to do is to log in, register tenants’ deposits and pay the deposit to the company. Payment can be made by bank transfer, direct debit, or cheque.

Insured deposit

If you prefer to hold a deposit, that might be the option for you. Like DPS insured deposit scheme, this option allows you to keep tenants’ deposits in your bank account whilst paying a fee to deposit. There is no cost to joining MyDeposit, however, they will charge you for each deposit taken, each deposit under £500 – £20 fee, over £500 – £27.50. The fees will be discounted -£13.20 and £17.95 accordingly if you are a member of NRLA.  As opposed to a custodial deposit, money is on your account during the tenancy.

Deposit replacement

MyDeposit also gives a more flexible option of deposit replacement. If, for some reason, your tenant wants more flexibility with their deposit. The deposit replacement scheme allows them to pay a monthly fee to MyDeposit. Then you as a landlord, get a certificate as soon as they complete the first payment. Although, the monthly fees are not refundable to a tenant.

End of tenancy

In case of custodial deposit ether part involved can start refunding process. In the case of an Insured deposit landlord or agent must start the process. Finally, when it comes to depositing replacement – in case of any changes to tenants’ deposits, MyDeposit should pay the claimed money to you, then deal with tenants accordingly.

The third authorised option is TDS

Out of the three government-authorised deposit schemes TDS is the oldest one. Similarly, to the two others TDS provides a custodial scheme and an insured scheme. The thing that sets them apart from the other companies is that they are not-for-profit organisations. They claim that the profits they make allow them to improve their customer service which they are very proud of.

Custodial deposit

Exactly like DPS and MyDeposit, TDS custodial deposit scheme is free of charge. And again, the process is very simple – create an account, register tenants’ deposits, and transfer the money.

Insured deposit

The insured deposit scheme allows you as a landlord to keep tenants’ deposits in your bank account. It is free to register an account with TDS. They will only charge you a fee if you decide to use their service. Prices of the service depend on two things: how much the tenant’s deposit and if you are an NRLA member. For NRLA members fees are as follows: £13.20 when the deposit is below £499.99 and £17.95 if the tenant deposit is more than £500. In case you are not a member of NRLA for deposits less than £499.99 the fee is £18.50, and for deposits higher than £500 it is £25.50.

End of tenancy

For users of the custodial deposit, scheme TDS will administer your deposit to the involved parts, after the agreement is made between tenants and landlords.  If you joined the TDS-insured deposit scheme and the tenant’s deposit is in your bank account, you will oversee repaying the deposit to the tenant. In the event of disputes, TDS provides a free dispute resolution service.

What is the option for you?

That depends. What brings you peace of mind? Is this knowing that money is out of your bank account, or would that be having money in your bank account? Would you prefer to administer the deposit yourself or would you prefer to do that yourself? Would you like to use a free scheme, or are you fine with paying a small fee?
We will also gladly assist you with making the decision. Contact me or the team to discuss your options.

Landlord Advice