Comparison Guide · 2026/27
Custodial vs Insured Tenancy Deposit Scheme UK 2026
Every assured shorthold tenancy deposit in England and Wales must be protected in one of the government-approved schemes, which come in two forms: free custodial schemes, where the scheme itself holds the money, and insured schemes, where the landlord or agent keeps the deposit but pays a premium so the tenant is still guaranteed protection. This guide compares the two scheme types for 2026/27, covering fees, cash flow and dispute resolution.
At a Glance
| Feature | Custodial Scheme | Insured Scheme |
|---|---|---|
| Who holds the deposit | The scheme provider | The landlord or agent |
| Cost to landlord/agent | Free | Annual/per-tenancy insurance premium |
| Landlord cash flow | Deposit inaccessible during tenancy | Landlord retains access to funds (minus premium cost) |
| Legal requirement to protect deposit | Yes, within 30 days of receipt | Yes, within 30 days of receipt |
| Dispute resolution | Free, independent ADR service | Free, independent ADR service |
| Best suited to | Landlords wanting no ongoing scheme cost | Landlords/agents managing multiple properties who value cash flow |
When a Custodial Scheme Wins
- You want the simplest, no-cost way to comply with deposit protection rules
- You do not need access to the deposit funds during the tenancy
- You are a smaller or first-time landlord who prefers minimal ongoing admin
When an Insured Scheme Wins
- You manage multiple properties and want to retain access to deposit funds for cash flow
- You are willing to pay a premium in exchange for keeping the money under your control
- Your letting agent already operates through an insured scheme as standard
Frequently Asked Questions
What is a custodial tenancy deposit scheme?
In a custodial scheme, the landlord or agent pays the entire deposit to the scheme provider (in England and Wales, the Deposit Protection Service or mydeposits/TDS custodial options), who holds the money for the duration of the tenancy. It is free to use, and the deposit is returned to whoever is agreed at the end of the tenancy, minus any deductions agreed or awarded through the scheme's dispute resolution service.
What is an insured tenancy deposit scheme?
In an insured scheme, the landlord or agent keeps hold of the deposit money themselves (often in a separate designated account) but pays an insurance premium to the scheme provider, which guarantees the tenant will get their money back (or a fair adjudicated amount) even if the landlord cannot or will not pay. Insured schemes therefore have a cost to the landlord that custodial schemes do not.
Which is cheaper — custodial or insured?
Custodial schemes are free to join and use, since the scheme itself holds the money and earns interest on the pooled funds instead of charging a fee. Insured schemes charge the landlord or agent an annual or per-tenancy premium, so for a landlord managing many properties, the running cost of an insured scheme can add up, whereas custodial protection avoids this — though it also means the landlord's cash is tied up with the scheme rather than accessible for cash flow.
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Which is better for landlord cash flow?
Insured schemes let the landlord retain the deposit money themselves throughout the tenancy (subject to the insurance premium cost), which can support cash flow, particularly for landlords with several properties who prefer to keep funds accessible. Custodial schemes require the full deposit to be paid over and held by the scheme, meaning the landlord cannot access those funds during the tenancy at all, even temporarily.
Does the choice of scheme affect what happens if there is a dispute?
No — all government-approved schemes, whether custodial or insured, provide a free, independent Alternative Dispute Resolution (ADR) service if the landlord and tenant cannot agree on deductions at the end of the tenancy. The adjudication process and the standard of evidence required are broadly similar across scheme types; the main practical difference is simply who is holding the money while the tenancy runs and, in a dispute, who releases the agreed or awarded amount.
Key Sources
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Disclaimer: This comparison is general information, not legal advice. Figures and scheme rules reflect the 2026/27 UK tax year and can change. Always check current gov.uk guidance or the specific scheme provider before choosing a deposit protection option.