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Security deposits, explained.

What a deposit is for, the four legal models you will meet, and what happens to the same $2,000 under each one. Plain English, opinionated where it should be.

What a deposit actually is.

A security deposit is one of the oldest mechanics in commerce. At the start of an agreement the customer puts up something of value, and the business keeps some or all of it if the customer does not hold up their end. Damage, unpaid balance, broken term: the deposit is what the business reaches for.

It exists to align incentives between two parties who do not fully trust each other yet. Move out clean and you get it back. Trash the place and you do not. The ugly part is who carries the friction, and most of deposit law is an attempt to fix that: interest requirements, escrow rules, return deadlines, itemised letters. Better than nothing. Still annoying.

Two residents carrying boxes into a new building

Meet Jane. She has $2,000 and a lease to sign.

Same resident, same apartment, same $300 carpet stain at move-out. Four ways the deposit can work.

  1. 01

    Cash

    Residentpays $2,000 up frontEscrow accountheld for 12 monthsOperatoritemises at move-outthe balance comes back, eventually

    Best at: Total clarity. The money exists.

    Worst at: Everything else. Jane loses a lot of cash for a year; the operator inherits fifty regimes and a refund dispute.

    1. Move-in

      Jane writes a cheque for $2,000 on top of first month's rent and the moving truck.

    2. During the lease

      The money sits in an escrow account for a year. The operator tracks the state's interest and return rules by hand.

    3. Move-out

      A carpet stain costs $300. The operator posts a cheque for $1,700 inside the statutory deadline, with an itemised letter. Jane waits for it.

  2. 02

    Surety bond

    Residentnon-refundable premiumInsureradjudicates each claimOperatorfiles a claim, waitsinsurer pursues the resident afterwards

    Best at: Frees Jane's cash without changing the operator's maths.

    Worst at: The claim queue, and a resident who ends up in collections with a company she never chose.

    1. Move-in

      Jane pays an insurer a one-off premium of a few hundred dollars. She never sees it again.

    2. During the lease

      Nothing happens. The bond sits with the insurer.

    3. Move-out

      The operator files a claim for the $300 stain. The insurer adjudicates it over a few weeks, then pursues Jane for the $300 plus costs. Jane did not know that part.

  3. 03

    Deposit insurance

    Residentmonthly premiumCarrierreviews, applies exclusionsOperatorfiles a claima variable payout, weeks later

    Best at: A low monthly cost and an easy rollout.

    Worst at: A variable payout after a review, and a fee that quietly carries everyone's losses.

    1. Move-in

      Jane signs up for a monthly premium with the operator's carrier.

    2. During the lease

      She pays monthly. Coverage and exclusions are whatever the carrier wrote.

    3. Move-out

      The operator files a claim. The carrier reviews it against its exclusions and pays what it decides to pay. Carpet may or may not be covered.

  4. 04

    Deposit guarantee

    Residentmonthly feeOperatordraws at move-outcertificatedraw, paid

    Best at: The payout of cash with none of the cash management, and a monthly bill instead of an upfront deposit.

    Worst at: A soft credit check up front, and a resident who leaves owing money still repays it, as she would have anyway.

    1. Move-in

      Jane verifies in three minutes and pays a small fee. A certificate issues to the operator before move-in.

    2. During the lease

      She pays monthly. The operator holds a certificate for $2,000 and nothing to reconcile.

    3. Move-out

      The operator itemises the $300 stain and requests a draw. It is paid. Jane repays Standby the $300, and only the $300.

Where Standby fits.

Standby runs two of those models: the deposit guarantee, and cash for residents who prefer it. Same dashboard, same certificate, same draw at move-out either way. From the operator’s side the two paths look identical. The resident picks.

The point is not that everyone should pick the guarantee. The point is that the operator stops running a deposit operation. Standby does.

See how it works →

Common questions.

Is a deposit guarantee insurance?
No. It is a guarantee to the operator for a fixed amount. No insurer sits in the loop, which is why there is nothing to adjudicate when the operator draws on it.
Does the credit check affect the resident's score?
No. It is a soft pull. It does not show to other lenders and has no effect on the score.
What happens at the end of the lease?
With a certificate, the fee stops. With a cash deposit, the balance comes back to the resident less anything itemised. Either way the operator draws only what is owed.
Can an operator still require cash?
Yes. Both options run through Standby and the resident chooses. If a lease requires cash for a specific reason, the certificate option can be switched off for that flow.

Want the side by side?

Standby against cash, surety bonds and deposit insurance, line by line.

Read the comparisons →