“We are missing out on £80m each year”: Why landlords should pay interest on tenants’ deposits

Renters are richer than they think. Image: Getty.

One of the consequences of The Rent Being Too Damn High is that private tenants have barely anything left over at the end of the month to put aside for a rainy day – let alone a home they can own. Last year’s English Housing Survey uncovered the astonishing finding that two thirds of the private renter population have no savings or investments.

Even if you’re fortunate enough to be able to save, the rewards for doing so are pretty meagre. To get a rate as generous as 2.5 per cent, you need to lock your money away for effectively as long as you’re a renter, with Barclays’ Help to Buy ISA (with an extra bonus from the government if you actually buy a house).

But even for most of the 66 per cent without savings, there’s another pot of money that’s held on the same basis but attracts zero interest whatsoever: the tenancy deposit.

Tenants hand over this sum, usually worth between four and six weeks’ rent, at the start of the tenancy to pay for any damage they cause or unpaid rent when they move out. The cash is either held by the landlord or letting agent and insured through a protection scheme, which arbitrates any disputes, for as little as £9.50; or it’s lodged with the scheme itself (known as custodial).

More than £4bn of tenants’ money is protected across the various schemes. Because you have to put down a deposit on a new tenancy before you get your old one back, it means the funds are incredibly stable, and should therefore attract a reasonable interest rate, even after deducting the costs of running the schemes. Yet few tenants see any return: Generation Rent estimates that we are missing out on £80m each year.

When we asked renters if they got interest when their last tenancy ended, just 2 per cent said yes. The government has already recognised this unfairness and asked custodial schemes to start distributing it. They have not – though, to be fair, the government has retained restrictions on how they can invest the money.

The custodial scheme is free for agents and landlords to use. Yet information we obtained through Freedom of Information revealed that most deposits are insured, and the average value of an insured deposit is £1,240: £373 higher than the average of £867 held in custodial schemes. This can only mean that it is somehow lucrative for agents to pay that small insurance premium, in order to hang on to large amounts of cash.


Our survey found that only 2 per cent of tenants whose deposits are insured are entitled by their tenancy agreement to receive interest. In comparison, one in four agents allocate that interest to themselves. Most tenancy agreements appear not to cover this.

Whatever actually happens to tenants’ deposits, the system is set up to give agents access to an incredibly cheap loan, with no benefit to their creditor. If they go bust, indeed, their creditor gets less than no benefit.

This has prompted some firms to set up deposit-free schemes, where the tenant hands over an insurance premium and can keep the rest of the deposit. But with most tenants getting their deposit back in full, they would be losing money by using such a scheme – and tenants with claims against them continue to be liable for damage and rent arrears.

These schemes are simply creating another poverty premium, taking advantage of those tenants with no savings. We don’t need a deposit system that makes money out of tenants: tenants need to make money out of the system.

That’s why Generation Rent is proposing to scrap the insurance schemes completely and reconfigure the custodial schemes so that the tenant, not the landlord, opens the account. When the tenant pays their final month’s rent, an equivalent portion of the deposit would be made available to put down on their next home (the landlord could still make a claim on the remainder once the tenant moves out). If adopted in the forthcoming Tenants’ Fees Bill, this policy could treble the short-term savings that the letting fees ban would create on its own, reducing the need to borrow or raid savings when moving home.

Personal tenant accounts would also make it much easier to distribute interest. And because less cash physically changes hands, less is needed to distribute between tenancies: £57m, we reckon. That leaves the vast bulk of tenants’ money that could be invested. If £4bn went into building community-led housing schemes, we think 35,000 homes could be built over five years.

That would not only give tenants a decent return on their own money, but it would play a role in bringing down rents, making it easier to save properly – or, to generally have nice things.

Dan Wilson Craw is interim director of Generation Rent.

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How can cities become more bike friendly? The Netherlands offers useful lessons

(Aurore Belot/AFP via Getty Images)

It might seem like cycling is in the DNA of the Netherlands, a country where even the prime minister takes his bicycle to work. But the Dutch haven’t always lived as one with their bikes. In the Amsterdam of the early 1970s, cars were considered the wave of the future. They can be seen filling up squares and streets in historical photographs, and killed an average of over two Amsterdammers per week, including many children.

It is nothing more than an “accident of history” that the Netherlands embraced cycling, says Marco te Brömmelstoet, the director of the Urban Cycling Institute in Amsterdam and a man better known as the city’s cycling professor. Today’s bike rider’s paradise was created after parents and activists took to the streets to protest “child murder” by car. A Saudi oil embargo, rising gas prices, concerns about pollution and anger about the destruction of entire neighbourhoods to build motorways did the rest. 


Amsterdam, 1958. Not a cyclist's paradise. (Keystone/Getty Images)

What’s important about this history is that it can be replicated in other cities, too. Of course, the Netherlands has certain advantages – it’s flat as a pancake, for example. But in the eyes of traffic reformers, the rise of e-bikes (and even cargo bikes) means there’s no excuse for prioritising cars everywhere. 

So how can cities, flat or not, follow Amsterdam’s path to creating places where cycling is a pleasant, safe and common way to get around? The Dutch have some tips. 

Separate bikes from car traffic

Any city could start painting dedicated bike lanes on the streets. But in the Netherlands, those white marks indicating space for cyclists are considered just a minor first step. 

“A line on the road is not enough. Motorists will ignore it,” says Frans Jan van Rossem, a civil servant specialising in cycling policy in Utrecht. If other cities want their residents to choose bikes instead of cars when dodging pandemic-era public transport, protecting them from fast-moving car traffic must be the priority, Van Rossem says. 

The Dutch research institute CROW developed a widely praised design manual for bicycle infrastructure, full of tips for creating these protected lanes: A row of vertical white posts or a curb can serve as a physical separator, for example. Still, cyclists tend to feel safest in a "solitary" path, separated from the road by grass, trees, or an elevated concrete island. 

“The main bottleneck, the main reason why people don’t cycle, is that they don’t feel safe,” Van Rossem notes. “To start, construct separate paths.”

Turn those bike paths into a network

Many cities may have some bike lanes on some streets, but leave cyclists to roll the dice everywhere else. Will conditions still be safe when they turn left or right? Often they have to continue their way without any protected facilities for cyclists. 

“In many cases, cities take fast action, without thinking it through very well,” says Lucas Harms. He leads the Dutch Cycling Embassy, a partnership between the Dutch government and several companies, which promotes Dutch bike knowhow globally. “Don’t build small pieces of bike lane from nothing to nowhere. Think about a network of cycling infrastructure.” 

Utrecht aims to have cyclists within 200 to 300 metres of a connected path anywhere in the city, Van Rossem says. Avoid constructing those paths in sketchy industrial areas, he warns. “A connection through an unattractive area may be fast, but won’t be used a lot.”

Embrace the ‘fietsstraat’, a street where bikes come first


On some streets, drivers have to give up their privileges. (Rick Nederstigt/AFP via Getty Images)

A peculiar Dutch invention called "fietsstraat" (cycling street) holds strong potential for the rest of the world, Kevin Krizek says. He’s a transportation professor from Colorado who spent three years at Radboud University in Nijmegen. 

On cycling streets, cars are “guests”, restricted by a speed limit of 30 kilometres per hour. Drivers are not allowed to pass, so cyclists comfortably dominate the road. In the Netherlands the fietsstraat is usually paved with red asphalt, to resemble a bike path and notify drivers of their secondary status. But creating a cycling street can be easy. “All you need to do is put signs at intersections,” Krizek says. The effect is revolutionary in his view. Drivers have to give up their privileges, and cyclists can take the lead. 

Some Dutch traffic experts worry the cycling street won’t work if a city doesn’t also have a robust cycling culture. In the Netherlands, drivers are aware of the perils of urban cycling because they too use bicycles. Moreover, Dutch cities use sophisticated “circulation plans” to direct cars away from city centres and residential areas, onto a few main routes. 

Without “calming” traffic this way, the cycling street could be a step too far, Harms says. “In a city like New York, where all roads are equally accessible and full, it’s better to separate bicycles and cars,” he says.

Redesign intersections for cyclists' safety

If cyclists have to cross intersections “at the mercy of the Gods”, you’re not there yet, says Harms. When he travels abroad, he often finds clumsily designed crossings. As soon as cars turn, cyclists may fear for their lives. 

Harms recommends placing physical barriers between cars and bikes in places where they must cross. The Dutch build elevated islands to direct traffic into separate sections. The golden rule: cars wait behind bicycles. That way, drivers can see cyclists clearly at all times. Barriers also force Dutch cyclists to turn left in the safest way possible. They cross the street first and wait for their turn again before making their way left.

“You can create that with simple temporary measures,” Harms says. Planters work fine, for example. “They must be forgiving, though. When someone makes a mistake, you don’t want them to get seriously injured by a flower box’s sharp edge.”

Professor Krizek points out how the Dutch integrated cycling routes into roundabouts. Some are small; some are big and glorious, like the Hovenring between Eindhoven and Veldhoven, where cyclists take a futuristic-looking roundabout lifted above the highway. Most of those traffic circles move high volumes of cars and cyclists through intersections efficiently and safely. For a simpler solution, the Dutch manual suggests guiding cyclists to quieter streets – crossing a block up or down may be safer. “Nobody knows how to do intersections better than the Dutch,” says Krizek. 

Ban cars, or at least discourage them


A man rides down from a three-level bicycle parking garage near Amsterdam's main train station. (Timothy Clary/AFP via Getty Images)

The quickest, most affordable way to make a city more bikeable is to ban cars, says Ria Hilhorst, cycling policy advisor for the City of Amsterdam. It will make streets remarkably safe – and will most likely enrage a significant amount of people. 

Amsterdam doesn’t outlaw cars, but it does deliberately make their owners feel unwelcome in the historic city’s cramped streets. Paid parking is hugely effective, for example. Many car owners decide to avoid paying and use bicycles or public transportation for trips into the city. Utrecht, meanwhile, boasts the world’s largest bicycle parking garage, which provides a dizzying 12,500 parking spots.

To further discourage drivers from entering the city’s heart, Amsterdam will soon remove more than 10,000 car-parking spaces. Strategically placed barriers already make it impossible to cross Amsterdam efficiently by car. “In Amsterdam, it is faster to cross the city on a bike than by car,” Harms says. “That is the result of very conscious policy decisions.”

Communicate the benefits clearly

Shopkeepers always fear they will lose clients when their businesses won’t be directly accessible by car, but that’s a myth, says Harms. “A lot of research concludes that better access for pedestrians and cyclists, making a street more attractive, is an economic boost.”

Try replacing one parking space with a small park, he recommends, and residents will see how it improves their community. Home values will eventually rise in calmer, bike-friendlier neighbourhoods without through traffic, Van Rossem says. Fewer cars mean more room for green spaces, for example.

“I often miss the notion that cycling and walking can contribute a lot to the city. One of the greatest threats to public health is lack of exercise. A more walkable and bikeable city can be part of the solution,” says Ria Hilhorst. “But in many countries, cycling is seen as something for losers. I made it, so I have a car and I’m going to use it, is the idea. 

“Changing this requires political courage. Keep your back straight, and present a vision. What do you gain? Tranquility, fewer emissions, health benefits, traffic safety, less space occupied by vehicles.” 

Again, she points to Amsterdam’s history. “It is possible; we were a car city too.”

Karlijn van Houwelingen is a journalist based in New York City.