Insured deposit scheme
An insured deposit scheme is a government-approved tenancy deposit protection arrangement in which the landlord holds the tenant's deposit and pays the scheme a fee to insure it, rather than handing the money to the scheme. The deposit stays protected throughout the tenancy, and the landlord returns it directly once any deductions are agreed. mydeposits and the Tenancy Deposit Scheme both offer insured cover, as does the Deposit Protection Service (GOV.UK).
How an insured scheme works
The landlord collects the deposit and keeps it, usually in a designated account, then registers it with the scheme within 30 days and serves the prescribed information. The landlord pays the scheme a fee for each deposit, and in return the scheme insures the money so the tenant is protected even though the landlord holds it. At the end of the tenancy the landlord agrees any deductions with the tenant and returns the balance directly, without routing the payment through the scheme.
What an insured scheme costs
Unlike a custodial scheme, an insured scheme charges the landlord a fee, typically an annual or per-deposit premium. In exchange, the landlord keeps the deposit as working capital for the length of the tenancy and retains any interest it earns. From working with landlords who run several tenancies on August, this is the deciding factor at portfolio scale, where the capital held across multiple deposits is worth more than the modest cost of the premiums.
How disputes are handled
Because the landlord holds the money, a dispute is managed differently from a custodial scheme. If the landlord and tenant cannot agree on deductions, the landlord must transfer the disputed amount to the scheme, which holds it and decides the outcome through its free dispute resolution service. The insurance element means the tenant is covered if the landlord fails to repay what is owed.
Insured or custodial: which suits which landlord
An insured scheme suits landlords who want faster access to the deposit and the cash-flow benefit of holding it, which tends to mean portfolio and professional landlords. A custodial deposit scheme suits landlords who want a free, low-admin option and are content for the scheme to hold the money, which tends to mean accidental and single-property landlords. Both protect the tenant equally under the same law; the difference is who holds the cash and who carries the admin.
The legal position
Tenancy deposit protection is governed by sections 213 to 215 of the Housing Act 2004. A deposit taken on an assured tenancy must be protected in an approved scheme, insured or custodial, within 30 days of receipt, with the prescribed information served in the same period. The deposit is capped at five weeks' rent, or six weeks where the annual rent exceeds £50,000, under the Tenant Fees Act 2019. This position is correct as of June 2026, following the commencement of the Renters' Rights Act 2025 on 1 May 2026.
Frequently asked questions
Does an insured deposit scheme cost money?
Yes. The landlord pays the scheme a fee to insure the deposit, usually as an annual or per-deposit premium. A custodial scheme, by contrast, is free.
Who holds the deposit in an insured scheme?
The landlord holds it for the duration of the tenancy. The scheme insures the money rather than keeping it, which is what allows the landlord to return it directly at the end.
Can a landlord use the deposit during the tenancy?
No. The deposit must remain available to return to the tenant. The insurance protects the tenant if the landlord cannot repay what is owed, but it does not permit the landlord to spend the money.
