Landlords can choose which scheme they wish to use and must safeguard each deposit and inform the tenant which scheme has been used within 30 days of receiving the deposit.
Tenancy Deposits: the options available
By using this type of scheme, you will hand the deposit over to the scheme provider for the duration of the tenancy. Once the tenancy has ended, the scheme will return the deposit to the tenant less any deductions that you and the tenant agree on.
Insurance Based Scheme
By using this type of scheme, you will pay a small insurance premium to the scheme provider which will cover that deposit for the duration of the tenancy. You are then able to hold onto that deposit and safeguard it in your bank account. Once the tenancy has ended, you will return the deposit to the tenant less any deductions you and the tenant agree on.
In both of the above situations, if you and your tenant do not agree on any deductions you are claiming, you must either use the scheme's dispute resolution service or take the matter to the small claims court.
For further guidance on the different schemes that are available, the Residential Landlords Association have provided a guide to the Tenancy Deposit Scheme, explaining the rules and regulations and information about the different approved schemes available.
RLA's Guide to the Tenancy Deposit Scheme