Is an insured scheme as legally compliant as a custodial scheme?

Yes — Housing Act 2004 s.212 authorises both models equally. A landlord using a properly registered insured scheme with correct Prescribed Information service has fully complied with their statutory deposit protection obligations. The distinction is practical risk management, not legal compliance.

Can I insist my landlord use a custodial scheme?

No. The choice of authorised scheme is the landlord's. You cannot require the landlord to use a custodial rather than insured scheme. However, you can ask which scheme is used and verify the protection independently.

What is client money protection and how does it relate to the insured scheme?

Client money protection (CMP) insurance is a separate product that letting agents are legally required to hold under the Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018. If the agent misappropriates client funds (including deposits), CMP covers the tenant's loss up to scheme limits. This is separate from the tenancy deposit insurance — tenants may be able to claim under both.

Insured Deposit Scheme

By GetRighted Legal Research TeamLast updated July 2026

Summary

With an insured scheme, your landlord keeps the deposit in their own account — they do not transfer it to the scheme. Instead, they pay a membership fee to an authorised scheme operator (TDS Insured, MyDeposits Insured, or DPS Insured) which provides insurance backing. The scheme insures the deposit is returned to the tenant at the end of the tenancy, even if the landlord defaults. The Housing Act 2004 s.212 authorises both custodial and insured models. For tenants, the key risk is that if the landlord spends the deposit and cannot repay, you may need to wait for an insurance claim to be processed — a slower route than the custodial model.

How an insured scheme satisfies s.212 Housing Act 2004

An insured scheme is authorised by the government as a 'tenancy deposit scheme' under s.212 provided it meets the statutory requirements: it must be run by a body of persons, provide for the payment of penalties, include a free ADR service, and meet the insurance conditions set by the Secretary of State. TDS Insured, MyDeposits Insured, and DPS Insured all hold government authorisation. A landlord who registers with an insured scheme and serves Prescribed Information correctly within 30 days has complied with their s.213 obligations even though the money stays in their account.

The insolvency risk for tenants

The main tenant risk in an insured scheme is landlord default. If the landlord has spent the deposit money and cannot repay it when the tenancy ends, the tenant must pursue the scheme insurer. This process takes longer than a custodial scheme refund. The insurer may also investigate the claim before paying, and if the landlord disputes the return of the deposit, the adjudication process still needs to run before the insurer can determine the correct amount. In contrast, a custodial scheme already holds the money — no insurance claim is needed.

Letting agents and insured schemes

Many letting agents use insured schemes — they hold the deposit in their client account (not the landlord's personal account) and maintain the insurance. If the agent becomes insolvent, the applicable compensation scheme (RICS, ARLA, NALS client money protection insurance) may apply in addition to the deposit scheme insurance. Always check whether your deposit is held by the landlord directly or by a letting agent client account.

What to check with an insured scheme deposit

✓Confirm the deposit is registered with TDS Insured, MyDeposits Insured, or DPS Insured — not just verbally assured.
✓Obtain the deposit protection certificate number and verify it on the scheme's website.
✓Check who holds the physical funds: the landlord personally, or a letting agent client account.
✓Note the landlord's or agent's client money protection membership — this adds a further layer of cover.
✓At end of tenancy, request repayment promptly: if the landlord is struggling financially, early action is faster.

When an insured scheme landlord defaults

If the landlord fails to repay the deposit after tenancy end and the dispute process has run, the tenant can apply to the scheme for the insurance to cover the shortfall. The scheme will then seek recovery from the landlord. Separately, the tenant retains the right to bring county court proceedings against the landlord for the deposit plus any s.214 penalty if Prescribed Information was not correctly served. These two routes are not mutually exclusive.

Sources

Housing Act 2004, s.212
Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018

Frequently Asked Questions

Is an insured scheme as legally compliant as a custodial scheme?: Yes — Housing Act 2004 s.212 authorises both models equally. A landlord using a properly registered insured scheme with correct Prescribed Information service has fully complied with their statutory deposit protection obligations. The distinction is practical risk management, not legal compliance.
Can I insist my landlord use a custodial scheme?: No. The choice of authorised scheme is the landlord's. You cannot require the landlord to use a custodial rather than insured scheme. However, you can ask which scheme is used and verify the protection independently.
What is client money protection and how does it relate to the insured scheme?: Client money protection (CMP) insurance is a separate product that letting agents are legally required to hold under the Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018. If the agent misappropriates client funds (including deposits), CMP covers the tenant's loss up to scheme limits. This is separate from the tenancy deposit insurance — tenants may be able to claim under both.

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