Deposit Protection Service - is our money only making money for Bankers?

regency_man

Hello money savers!

What is going on with this Deposit Protection Service malarky? I remember when it was launched in 2007 there was a big fanfare about the fact that one of the benefits for the tenant was that it would stop landlords investing and making interest on money that wasn't really theirs. It even went on to say that the tenant would even be paid interest on their deposit while it was in the scheme. Figures like '2.32% below the Bank of England Base Rate' were quoted. http://www.depositprotection.com/documents/newsletter-4.html

However, it seems the DPS have 180 degree reversed that decision, and apparently the Communities and Local Government organisation which licences the DPS to undertake this work have more recently changed the terms of the contract, so that the DPS are no longer obliged to pay any interest payments to anyone! See: https://www.depositprotection.com/help/browse/custodial/tenant/interest-payments

Now, by their own claims, the DPS is holding 'billions' of pounds of tenants deposits (can't get an exact figure). It's almost impossible for any organisation to be sitting on billions of pounds and it not be 'making money' in some way. Even if it was the 0.9% I get on my rock bottom basic savings account, it would be making £9 MILLION a year on each billion. In reality I suspect this money is being invested in much more lucrative bonds and long term investment, so you can realistically say the DPS is making around £50 MILLION a year on each billion of our deposits they hold.

So, if it is no longer paying the interest to tenants.... where is it going?

The Deposit Protection Service is actually owned by an investment banking firm, Computershare. They will have significant running costs managing all those deposits, as well as arbitration for disputes etc, but what about the 'left overs'? Have we gone from a situation where landlords were making money on tenants' deposits, to where fat-cat bankers are making money on tenants' deposits?

Please tell me I'm wrong, because this is starting to stink! I feel a freedom of information request coming on!

SerialRenter

"Bank of England base rate minus 2.32%" well, the base rate is 0.5%.

The deposits cannot shrink (i need a citation here)*, so the interest rate is 0%.
Which is what they imply in their FAQ

However, any deposit that accrued interest before the Bank of England base rate fell below 2.32 per cent in December 2008 will still be eligible to be paid with the interest previously accrued.

As the order they're quoting is this one, i don't think anything has changed as it doesn't state there will not be future interest payments. So if the base rate rises above 2.32% then interest will be payable again.

Although i suspect you're right in general, someone always gets rich, and it's never the consumer.


*deposits haven't shrunk, not sure if this is due to government preventing it, or action taken by the scheme independently.

regency_man

Yep I agree, the reason they are not paying interest to tenants today is because of the base rate. But there is nothing stopping them from investing and retaining the profit.

Anyway, we might soon find out. I submitted the FOI request.

https://www.whatdotheyknow.com/request/deposit_protection_scheme_contra/

jjlandlord

For some, nothing is ever going to be good enough is it?

In any case, the deposit is paid to the landlord, so the landlord can decide through the tenancy agreement that no interest will be paid to the tenant.
In fact I think that would be a wise clause to have in any case.

This is a very common clause anytime a sum of money is held for some time.

harrys_dad

Surely with interest rates being so low it will be hard for the DPS to even cover its operating costs from investing the money?

kingstreet

I get the impression the rate collar ensures the service pays for itself, with any excess when rates are higher passed on to the depositors.

How else could/should the scheme be paid for?

AndyT678

regency_man wrote: »

Yep I agree, the reason they are not paying interest to tenants today is because of the base rate. But there is nothing stopping them from investing and retaining the profit.

Nothing except their standard, publically available T&Cs published on their own website...

35. General
f. All Deposits will be held in a designated bank account which The DPS maintains for Parties using the Scheme.

https://www.depositprotection.com/documents/terms-and-conditions-custodial.pdf

Of course they can't go off taking wild punts on "investments" with tenants' deposits. It would be a crazy risk to take.