Legality

Since April 2007, it has been law that a tenant must lodge a cash deposit with their landlord. The rules were brought in to ensure a fair and transparent relationship between tenants and landlords when it comes to managing the cash deposit and agreeing to any deductions at the end of the tenancy.
The law states that a landlord cannot ask for more than 5 weeks rent in the form of a deposit (6 weeks if the annual rent is £50,000 or more).
To work out 5 weeks rent; (monthly rent x 12/52) x5. When you give your landlord your cash deposit, they must retain that money until you ask for it back at the end of your tenancy. At that point, they may request that some, or all, of the money is used to pay for any damages, cleaning, or unpaid rent that you may have outstanding. If all is ok, you get the full amount back.

Deposit Schemes​

The three main schemes in which your landlord will lodge your deposit are; My Deposit, Deposit Protection Scheme, and Tenancy Deposit Scheme.
They are government-backed. They allow your landlord to give them the full deposit for free or allow your landlord to retain your deposit and provide them a small fee. If they elect to retain your deposit for the duration of your tenancy, they must not spend it. Typically, your contract will state that any interest earnt on your deposit will not be returned to you.

The Alternatives

There are alternatives, though. It may not be financially feasible for you to give up that much money, in addition to paying for your first month’s rent and other moving costs.
Even more applicable, when you come to move rental properties, you may not have your first deposit returned before the second one is required.

Deposit Guarantee

For a small fee (normally around 1 weeks rent), some companies will provide you with a Deposit Guarantee (such as Zero Deposit, FlatFair, Reposit).
So, on a £901 monthly rental, you would normally require a deposit of £1040 (the UK avg). Instead, you could give one of these companies approximately £208, and they would provide you with a Deposit Guarantee certificate, which you can give to your landlord instead of providing the full deposit. At the end of the tenancy, you are still liable for any and all costs associated with a tenancy deposit. Suppose you do not pay for damages or rent arrears. In that case, the Deposit Guarantee companies will pay the landlord and recover the money from you.
At the end of your tenancy, you do not get the £208; that is a fixed cost for providing you with a deposit guarantee. However, suppose you remain in the same property for continued years, with no key changes to your tenancy agreement. In that case, you can extend the deposit guarantee for a small fee (check with each provider, but some are as low as £26), so additional years prove a lot cheaper.
The average tenant rents their property for 3 years, so this would be an efficient way of managing your deposit.

Deposit Cover

There are additional routes, too. For example, Fronted Rent will loan you the full amount of the deposit up front, with an APR of 12.5%. This sounds high, but on a £1040 deposit loan, the interest cost is only £67.
You pay back the loan monthly over the course of the year, and at the end of the tenancy, receive the total amount back (assuming no damages or rent arrears).

What does your deposit cover?

At the end of your tenancy, you must request your deposit back from your landlord. Within 10 days, they must return your full deposit or confirm they are requesting a deduction. You can accept or question the amount they are choosing to deduct.
If you do not come to an agreement, you may take it to an adjudication process, normally managed by the scheme with which your landlord has lodged your deposit. As with all questions relating to your tenancy; check your contract and check your inventory.
When you moved in, you signed a document listing your responsibilities when you move out. This will include a list of items (inventory) that the landlord has supplied. If any are missing or damaged, your landlord may take the amount from your deposit.
Typically, you must return the property in the same condition in which it was received (with allowances for wear and tear). If you’ve put holes in the wall without permission (for example, to hang shelves), then your landlord has a right for these to be repaired at your cost. Such things are specific to each tenancy and circumstance so, in all cases; ask permission.
If you’d like to hang a picture, ask the landlord if it’s ok and how you’ll do it (a small nail or a big screw are quite different).
Nearly half of all deposit deductions are caused by poor cleaning by the outgoing tenants. Be sure to clean to the standard expected. It helps to take photos when you move in, so you may compare. You may wish to employ a cleaning company to perform an end of tenancy clean, or confirm with the landlord that your cleaning has met their expectations before leaving.
The tenancy deposit laws, enacted in 2007, are designed to ensure a safe and transparent way for landlords and tenants to have a successful rental partnership. Talk with your landlord, be sure to understand the expectations, and you’ll enjoy the experience!