How to save for a tenancy deposit

Hands up if you have £1,470 in savings? It’s a hefty amount but that’s the approximate sum renters need to cover the average UK tenancy deposit. We know it’s not easy to amass this sort of money, so here’s our advice on how to save for a tenancy deposit.

Cash or card?

How you intend to pay for your tenancy deposit will affect your saving strategy. Having the money to pay upfront is the recommended method – with money in the bank you can settle the deposit by debit card or bank transfer. 

If you don’t have access to cash, you may consider paying for a tenancy deposit using a credit card. Although this avoids having to save up, it carries downsides. If the card doesn’t have an interest-free period, you’ll be charged interest on anything you spend from day one. There may also be a transactional fee if using the card to pay a tenancy deposit, so plan carefully.

Quick fixes

With a concerted effort, it is possible to build enough savings to cover a tenancy deposit. Just remember to bank any money you save and not fritter it away!

• Don’t overspend: stick to a budget so you don’t harm your chances of putting money away every month

• Save regularly: you can set up a standing order from an everyday account to a savings account, ensuring a fixed amount is transferred every month, automatically

• Swap savings accounts: shop around to find the savings account with the best rate of interest and move your money there

• Switch suppliers: evaluate any services you pay for and see if you can swap to cheaper packages or downgrade the level of service

• Scale back luxuries: cut back what you spend on non-essentials, such as coffees, takeaways and beauty treatments 

• Start a side hustle: boost your income with a second job, sell unwanted items or monetise a hobby you might already have

• Cancel unused subscriptions: go over your bank statements with a fine tooth comb, cancelling any subscriptions you don’t need or use

The sliding scale of borrowing

If you've reached the limit of economising and are still short on your tenancy deposit, it is possible to borrow money. It’s not as uncommon as you think, as a survey of 1,000 UK renters revealed 1 in 5 tenants get into debt trying to fund a tenancy deposit.

How you borrow money can make all the difference to your financial health. Asking family or a friend for a loan is the gentlest form of borrowing. Usually this is an informal arrangement, with no credit check and interest applied but, nonetheless, it’s a debt that needs repaying.

A 0% interest credit card, overdraft or workplace tenancy deposit loan scheme are medium risk borrowing strategies. The loan amount will need repaying and there will be penalties if a repayment is late or missed altogether. 

Taking out a personal loan, conventional credit card or short-term loan will result in a cash injection but will also cost the most in terms of repayments – which will be in addition to your monthly rent and bills. Carefully weigh up the risk-reward when borrowing money one of these ways as debt can soon mount.

4 tips for deposit-paying tenants

1. If you borrow money from family or a friend, consider creating a written agreement. It may sound drastic but informal agreements to loan money can turn sour if there’s any confusion about whether the amount needs repaying and what might happen if the debt can’t be repaid – perhaps if the deposit is not refunded in full.

2. If you use credit provided by a bank, building society or other lender, there are downsides. Interest on the debt will be charged, plus your credit score will be affected if you miss repayments or are late paying off the monthly amount.

3. Be aware of 0% interest credit cards and overdrafts. The interest free period is usually time limited. If there is still a debt after the 0% promotion ends, interest will be applied and this will usually be at the provider’s astronomical standard variable rate.

4. Never pay for your tenancy deposit using cash – a good letting agent or landlord will not take banknotes and coins. Instead, they will prefer a bank transfer or a debit card payment, which leaves a digital transaction trail.

Contact us if you would like to talk about renting a property. Our team is here with advice for all tenants and landlords.