The £5.37 billion currently held in tenancy deposits across three government-approved schemes in England and Wales could generate considerable returns if pooled and invested. These returns could support legal action against negligent landlords, and ease the financial burden of moving by an average of £817 per household.

Despite this potential, renters are currently seeing only £17m in benefits from the interest on their deposits. Meanwhile, many face serious challenges in raising a deposit to begin with. A survey by Opinium, commissioned by Generation Rent, found that 16% of renters had to borrow money to fund their last move, while 29% relied on savings.

Generation Rent is calling for the creation of a new Renters’ Support Fund, based on a successful Australian model. This fund would consolidate the existing deposit protection schemes into a single, non-profit provider, simplifying the system and making it more efficient.

In the UK, landlords must protect tenants’ deposits using a government-backed scheme. In England and Wales, landlords have the option to either hold the deposit themselves and pay to insure it (insurance-backed), or place it with the scheme at no cost (custodial).

However, the £2.9bn currently held in insurance-backed schemes complicates the system and allows landlords to keep any interest earned. Generation Rent is urging the government to scrap insurance-backed options entirely and move all deposits to custodial protection.

The organisation obtained data on deposit protection through Freedom of Information requests to the Ministry of Housing, Communities and Local Government. Only the 54% of tenants whose landlords use custodial schemes currently receive interest on their deposits, at low rates around 0.7%, generating just £17m annually on £2.4bn in funds.

If all deposit funds, excluding a small reserve to pay out legitimate landlord claims, were invested in line with the Bank of England base rate of 4.25%, the system could generate up to £226m annually. After deducting £40m for administration, this would leave:

• £50m to restore legal aid for renters seeking redress for unsafe housing
• £25.5m to fund deposit passporting and reduce upfront moving costs
• £6.7m to support deposit guarantee schemes for renters at risk of homelessness

This funding package would require an average return of just 2.3% on current deposits. Any additional income could be returned to tenants as interest, outside of the deposit amount that landlords can claim against.

For those unable to afford a full deposit, so-called ‘deposit alternatives’, such as one-off or recurring non-refundable fees, have become more common. These products are largely unregulated.

Seven per cent of respondents in the Opinium survey said they had used a deposit alternative for their current tenancy. Among these, 51% were receiving benefits and 28% reported a disability—compared to 39% and 24% in the broader sample. This suggests that those most financially vulnerable are disproportionately turning to more expensive alternatives.

“These ‘deposit alternatives’ are effectively a poverty premium, forcing those with the least to pay the most,” the report warns. “That they are disproportionately used by disadvantaged groups underlines the urgent need for regulation.”

One alternative, deposit passporting, would allow tenants to transfer an existing deposit to a new tenancy, lowering upfront moving costs by an estimated average of £817. While tenants would make a temporary payment equivalent to one week’s rent, most of this would be refunded once their original deposit is released. Renters would pay only a £20 fee, with remaining costs covered by the Support Fund. This structure reduces the financial risk that has previously deterred private companies from offering deposit passporting.

It’s estimated that this system could free up £694m of renters’ money each year, money that would otherwise be tied up, helping to cut debt and reduce financial stress during moves.

The government is currently reviewing the deposit protection system in England and Wales ahead of the renewal of scheme accreditations in 2026.

Dan Wilson-Craw, deputy chief executive at Generation Rent, said: “Renters face many disadvantages in the housing system. Around half lack savings, making moving home a more painful process than it should be. Limited access to legal support means it is hard to take action if your landlord is failing to keep your home safe.

“So it is a scandal that the billions of pounds of renters’ money tied up in deposit schemes is not being used to improve the experience of renting, and in many cases sees landlords and letting agents collecting the interest. With deposit schemes’ contracts up for renewal, the government has a golden opportunity to get renters’ money working for renters.”