#AskTDS: Who gets the interest on the tenancy deposit?

By law, if a landlord takes a tenancy deposit, they must protect it in a government-backed tenancy deposit scheme. Over the course of the tenancy the deposit may earn interest depending on where it is lodged, but who is entitled to this interest? That depends on what type of scheme you protect the deposit in and what is included in the tenancy agreement.

How different schemes impact interest on the tenancy deposit

There are two types of tenancy deposit schemes:

• Custodial
• Insured

Custodial schemes

Custodial tenancy deposit schemes are free to use; this is because the scheme is funded by the interest generated from the tenancy deposits held by the scheme. Therefore, if you are using a custodial scheme, the scheme provider retains any interest earned on the tenancy deposit whilst it’s registered.

Insured schemes

Insured tenancy deposit schemes allow either the landlord or the letting agent acting on the landlord’s behalf to hold the deposit in a suitable account for the duration of the tenancy. Landlords or letting agents will pay to protect the tenancy deposit to comply with the TDP legislation, which is generally a small fixed sum. In this case, to avoid any disagreements later in the rental transaction, it is best practice to include information in the tenancy agreement about who is entitled to any interest earned during the tenancy. It’s quite usual for the interest to be retained by the landlord or their agents. If there is no mention of the interest in the tenancy agreement, then it can cause confusion. For TDS the amount registered as the tenancy deposit is the sum protected and does not include any interest accrued, so making it clear what happens to any interest will benefit all parties and reduce any concerns.

As ever, the details contained within the tenancy agreement will detail what the parties agreed to and should cover all aspects of the tenancy to prevent uncertainty.

For more landlord tips please view our landlord FAQ page.

About TDS

Tenancy Deposit Scheme (TDS) is a government-approved scheme for the protection of tenancy deposits; TDS offers both Insured and Custodial protection and also provides fair adjudication for disputes that arise over the tenancy deposits that we protect.

We provide invaluable training in tenancy deposit protection and disputes for agents and landlords through the TDS Academy as well as joining with MOL to provide the Technical Award in Residential Tenancy Deposits.

TDS Insured Scheme: where a TDS member can hold the tenancy deposits as stakeholder during the term of the tenancy.

TDS Custodial Scheme: where TDS hold the deposit for the duration of the tenancy.

TDS Academy: TDS provides property professionals with invaluable training in tenancy deposit protection and tenancy deposit disputes.

TDS Northern Ireland: TDS is Northern Ireland's leading and only not for profit tenancy deposit protection scheme.

TDS can only comment on the process for our scheme, other deposit protection schemes may have a different process/require different steps. Content is correct at the time of writing.

These views are those of the author alone and do not necessarily reflect the view of TDS, its officers and employees.

RLA: If you are a landlord and would like to keep up to date with any changes that may affect you or your responsibilities, you can contact the RLA at: info@rla.org.uk and quote reference: dg715 to receive 25% off your first year's membership.