For landlords and letting agents in the UK, one of the two main ways to protect tenant deposits is through an insured deposit protection scheme. The insured option allows landlords and agents to retain control of the deposit while still the deposit is legally protected. But how does it work, and what are the benefits? Here, the Tenancy Deposit Scheme explains the Insured scheme, its process, and why it could be the right choice for you.
What is an Insured deposit protection scheme?
An insured deposit protection scheme is a government-approved method of protecting tenancy deposits, allowing landlords or letting agents to hold the deposit in their own account. Unlike custodial schemes where the deposit is held by the scheme itself, an insured scheme requires agents or landlords to pay a fee to insure the deposit, while keeping it secure in a separate client or deposit account.
How does an Insured deposit protection scheme work?
Using an insured deposit protection scheme involves a few key steps:
1. Register the deposit
- Once you receive the tenant’s deposit, register it with the insured scheme within 30 days.
- Pay the required insurance fee to the scheme.
- Provide the tenant with the Prescribed Information, detailing where and how their deposit is protected.
2. Hold the deposit securely
- The deposit must be kept in a separate client or deposit account and cannot be used for other expenses.
- Throughout the tenancy, the deposit remains under the landlord or letting agent’s control, while the insurance ensures the tenant’s money is protected.
3. End of tenancy handling deposit returns
- If no deductions are needed, the landlord or agent returns the deposit directly to the tenant without the scheme’s involvement.
- If deductions are required, the landlord must communicate with the tenant and provide evidence.
- If the tenant agrees, the deductions are made and the remaining deposit is returned.
4. Handling deposit disputes
- If the tenant disputes the deductions, the deposit protection scheme steps in.
- The disputed amount must be transferred to the scheme, where an independent adjudicator reviews evidence from both parties.
- Once a decision is made, the scheme distributes the disputed amount accordingly.
For more details about dispute resolution, click here to read the TDS Guide on Understanding Dispute Resolution.
Benefits of using an Insured deposit protection scheme
- Faster deposit returns
Since the landlord or agent holds the deposit, refunds can be processed quickly when there are no disputes.
- More control
Landlords and agents retain the deposit throughout the tenancy, allowing them to manage funds efficiently and handle deductions without waiting for a third-party scheme to release payments.
- Flexible for portfolio landlords and letting agents
Perfect for those managing multiple properties, as it keeps funds accessible while still ensuring legal protection. With TDS, you also have the convenience of using both the Custodial and Insured schemes under one roof, giving you the best of both worlds.
- Legally compliant
Provides legal protection for both landlords and tenants while allowing deposit management flexibility.
- Rewards over resolving disputes
In the TDS Insured scheme, TDS offers reduced costs to agents with low dispute tenancy rations, and for resolving disputes over deductions independently.
TDS Insured is the best-value insured protection scheme on the market, switch today!
What happens if a landlord or agent misuses an Insured scheme?
Because landlords and agents retain the deposit funds, they must handle them responsibly. Failing to follow the rules can lead to serious penalties:
- Fines up to three times the deposit amount if the deposit is not properly protected.
- Legal action from tenants, potentially resulting in full deposit repayment even if deductions were valid.
- Inability to serve notice, affecting your ability to regain possession of the property.
To avoid penalties, landlords and letting agents should always protect deposits within 30 days, issue Prescribed Information, and follow the correct dispute resolution procedures. For more details on deposit protection compliance, visit gov.uk.
Why choose the Tenancy Deposit Scheme?
The Tenancy Deposit Scheme is a government-approved provider, offering insured deposit protection schemes with industry-leading support and dispute resolution services.
The Tenancy Deposit Scheme is often the preferred choice due to its commitment to landlords, agents, and tenants alike. With years of experience, access to Agent+ and Landlord+ and a reputation for reliability, TDS ensures your deposit protection needs are met. Plus, The Tenancy Deposit Scheme offers both insured and custodial options (with the option to choose both schemes, or switch from one to another!)
Visit the TDS website to explore your options and find the perfect deposit protection scheme for your tenancies.
Industry leading rates for agents and landlords
Joining TDS is quick and easy, protect today or speak to our switching experts to find out how TDS can support you! Affiliated members and NRLA members receive discounted rates on their deposit protection.
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