A new report from Generation Rent claims that private renters in England and Wales are being deprived of £169 million in potential interest on their tenancy deposits each year. The organization is calling for a major overhaul of the current deposit protection system, arguing that the money should be used to support tenants.

How the System Works Now

In the UK, landlords must protect a tenant’s deposit in one of three government-accredited schemes. There are two types of schemes:

• Custodial Schemes: The deposit is held by the scheme administrator for free. Any interest earned on these funds is retained by the scheme provider to cover administrative costs. Only a small number of these schemes pay any interest to tenants, and at a very low rate (around 0.6%).
• Insured Schemes: The landlord or agent holds the deposit and pays a fee to the scheme to protect it. In this model, the landlord or agent keeps any interest earned on the deposit.

According to Generation Rent, the current system allows for a “scandal” where billions of pounds of renters’ money is not being used to improve their experience.

A Proposed Solution: The Renters’ Support Fund

Generation Rent is advocating for a new Renters’ Support Fund, inspired by a successful model in Australia. The proposal would:

• Consolidate Schemes: Merge the existing deposit schemes into a single, non-profit custodial system.
• Generate Revenue: Invest the total pool of deposits to generate a significant annual return. If invested at the Bank of England’s current base rate of 4.25%, the funds could yield £226 million a year.
• Benefit Renters: The money generated could be used to:
  • Provide £50 million for legal aid to help tenants challenge landlords over unsafe living conditions.
  • Create a “deposit passporting” system, allowing tenants to transfer deposits between tenancies and saving them an average of £817 in moving costs.
  • Support deposit guarantee schemes for vulnerable renters.
• Return Surplus: Any leftover interest could be returned directly to tenants.

The “Poverty Premium”

The report also highlights the financial strain on renters, finding that a significant number borrow money or use their savings to cover moving costs. For those unable to afford a full deposit, unregulated “deposit alternative” products—often non-refundable fees—are becoming more common, particularly among disadvantaged groups. Generation Rent argues that these costly alternatives represent a “poverty premium” for vulnerable renters, and a new, more efficient system could help to eliminate this.