Deposit Alternatives: A New Deposit Choice for Renters

A big issue for anyone renting a property, whether for the first time or moving from one rented home to another, is raising the deposit. 

The deposit is usually equivalent to up to five weeks’ rent in England, or six weeks if the annual rent is £50,000 or more. Using the latest English Housing Survey figures, the average private rent in England was £250 a week in 2024-25. This means a typical five-week deposit would be about £1,250. In London, where the average private rent was £393 a week, a typical five-week deposit would be about £1,965.

An increasing number of deposit alternatives are seeping into the market. They are intended to make it easier for tenants to save a deposit for a rental property.

Traditional deposit versus deposit alternative

Traditional rent deposits may require tenants to dip into savings or borrow from friends and family. However, the advantage is that at the end of a tenancy, the deposit is returned, minus any deductions for property damage or unpaid rent.

The new Deposit Alternative schemes used by some landlords and letting agents have the advantage to the tenant of requiring a much smaller one-off fee, often around one week’s rent. 

But the disadvantage of these is that the one-off fee is non-returnable. There may be small monthly charges too. In addition, tenants pay to cover any damage identified when they move. 

How do tenancy deposit alternatives work?

There are now a number of major Deposit Alternative operators, but most operate along similar lines. They have roughly the same rental deposit rules.

The appeal to renters is that they need only a small upfront payment rather than a full cash deposit. This may, in turn, give some renters a wider choice. For example, they may be able to consider a larger home or a more expensive location. This is because they have only a small deposit to pay. A traditional deposit on a rental property of that size or in such a location may have been unaffordable.

For landlords and agents, Deposit Alternatives are effectively insurance schemes.

In return for the upfront fee paid by the tenant to start the scheme, the provider gives the landlord cover for damage or unpaid rent. However, the level of cover can vary between schemes.

If, when a tenancy ends, there is a dispute over alleged damage or unpaid rent, then most Deposit Alternative schemes use an independent arbitration system. Again, this is similar to what happens with traditional deposits.

Additional fees for deposit alternatives

• Deposit Alternatives will always involve tenants ‘losing’ money because they must pay an initial one-off non-returnable fee. 

This is unlike the traditional system, where, if they return the property in good condition and are up to date with rent, the deposit for the rental property is returned in full.

• Some Deposit Alternatives involve a small monthly non-returnable fee as well, which can add up to a substantial sum over time. 

These fees are often disclosed in the small print of the tenancy agreement. So they can be overlooked by inexperienced renters who are unfamiliar with the paperwork and procedures involved in renting a property.

• Finally, although it is not necessarily disclosed to the tenant, some letting agents and landlords who promote Deposit Alternatives to tenants will get a ‘referral fee’.

In other words, this means part of the tenant’s initial upfront non-returnable payment, in fact, goes to the agent. 

Must tenants use deposit alternatives?

Since the introduction of the Tenant Fees Act, agents and landlords offering Deposit Alternatives must do so as an option only. 

Any tenant can, if they wish, choose instead to use a traditional tenancy deposit system. The government’s guidance says a landlord is not allowed to make you pay for insurance or start a contract for a service as part of your tenancy.

Which is the best security deposit scheme?

Deposit Alternative schemes are still new, and tenants, landlords and agents are all relatively inexperienced with them. In addition, there has so far been little guidance on how such schemes should be sold to tenants, to ensure renters know the pros and cons.

Some schemes are registered with the Financial Conduct Authority, which is the regulator for almost 60,000 financial services firms. However, it is still important to read the terms carefully, because different products work in different ways. FCA registration does not automatically mean one scheme is better for every tenant.

What rental experts say about tenancy deposit alternatives

There is widespread acceptance that high traditional deposits can be a barrier for renters. Therefore, a Deposit Alternative can be both tempting and genuinely useful.

But some organisations urge caution, advising renters to research the scheme they choose and the fees it charges.

The key point for renters is to understand exactly what they are paying for, whether there are monthly charges, how disputes are handled, and whether they would be better off paying a traditional refundable deposit instead.

What the Renters’ Rights Act means for deposits

The Renters’ Rights Act does not ban tenancy deposits or deposit alternatives. However, it does change some of the rules around upfront payments in England.

From 1 May 2026, a landlord or letting agent must not accept, ask for or encourage a tenant to pay rent before the tenancy agreement has been signed. After it has been signed, they can usually ask for up to one month’s rent before the tenancy starts. In addition, a holding deposit can still be charged, but it must be refundable and is capped at one week’s rent.

That means deposit alternatives may still appeal to renters who want to reduce their upfront moving costs. However, they should be compared carefully with a traditional deposit. Especially now that large rent-in-advance demands are restricted in England.

In the future, there may be wider deposit reform

The government has previously explored tenancy deposit reform and deposit ‘passporting’. Where part of a deposit could move from one tenancy to the next. However, there is currently no national ‘lifetime deposit’ scheme in force.

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Last Updated: June 3rd, 2026