Scope: England and Wales. The 30-day deadline and the protection duty are the same in both, but Wales has its own consequences — see deposits in Wales and the divergence map. Verified against the legislation on 14 August 2026.
Every deposit must go into a government-authorised scheme within 30 days, along with the prescribed information. That part is not optional and missing it cannot be cured.
What is a choice is which kind of scheme, and most landlords make it without knowing there was one.
The two models
| Custodial | Insured |
|---|
| Who holds the money | The scheme | You |
| Cost to you | Free | A fee per deposit |
| Interest | Scheme's rules | Yours, in practice |
| Cashflow | Money leaves you at the start | Money stays with you |
| At the end | Scheme releases on agreement or adjudication | You pay the tenant; disputed sums go to the scheme |
The difference that actually matters
It is not the fee. It is who has to move the money when the tenancy ends.
Custodial: the scheme already holds it. Neither side can stall. If you agree, it is paid out; if you do not, it stays put until adjudication decides. A landlord cannot delay a tenant's money and a tenant cannot pressure a landlord by threatening to.
Insured: you hold it, so you must pay the undisputed part back promptly and transfer any disputed amount to the scheme. Two ways this goes wrong — you spend it, or you sit on it while arguing. Both convert a deduction dispute into a much worse claim.
Which one to choose
Custodial suits most small portfolios: it is free, it removes the temptation and the administration, and it is the harder position to attack. If you do not need the cashflow, there is little argument for paying to keep money you may have to hand back.
Insured suits landlords who genuinely use the cashflow, or agents holding client money under their own arrangements. You are paying a fee for the use of the money and taking on the duty to move it promptly.
Adjudication is the same either way
The scheme decides on the papers. It does not visit, and it does not take your word for it. What wins is evidence, and the evidence has to have existed at the start:
- A dated inventory with photographs, signed by the tenant.
- A check-out in the same format so the two can be compared.
- Invoices for work actually done, not estimates of what you might do.
- An understanding of betterment: you cannot charge a new carpet's full price for a carpet that was five years old.
Deductions that stand up covers what adjudicators accept. The scheme you chose makes no difference to that; it only decides who is holding the money while you argue.
The mistakes that cost more than the fee
- Protecting late. Day 31 is a breach, and it is not cured by protecting afterwards.
- Protecting but not serving the prescribed information. The commonest failure of all, and it carries the same penalty.
- Taking more than the cap. Deposit limits are statutory.
- Not re-serving on a change. If the tenancy or the parties change, check whether the protection and information need repeating.
- Treating a holding deposit as a tenancy deposit. Different rules, different limits.
An unprotected deposit also surfaces at the worst moment: as a counterclaim when you bring a possession claim.
Check your tenancy agreement free — the deposit clauses are among the ones we read.