What happens if the tenant does not pay the deposit?

If the first instalment is missing or a significant arrears builds up, termination without notice may be possible.

Do the interest earnings have to be paid out annually?

No, the interest earned stays in the account for the duration of the tenancy.

How can I protect myself against my tenant's insolvency?

Through a proper pledge, you have a preferential right to the deposit.

Who sets up the rental deposit: the landlord or the tenant?

Every new tenancy also raises the question of security. The rental deposit (up to three months' net cold rent) protects landlords financially against damage or outstanding claims. But who is actually responsible for setting it up?

By law, the landlord is obliged to set up the rental deposit (§ 551 BGB).

However, there are permitted alternatives, such as the tenant setting it up by way of a pledge.

Setting up the rental deposit – at a glance

In principle, the landlord is legally obliged to set up the rental deposit (§ 551 BGB).
The deposit must be held separately from private assets and protected against insolvency, usually with a credit institution.
The interest earned belongs to the tenant and increases the deposit amount.
Alternatively, the tenant can set up the deposit themselves, e.g. via a pledged account or securities account – provided there is a clear agreement.
What matters is not who opens the account, but that the deposit is set up in a legally secure and verifiable way.
Mistakes when setting up the deposit can lead to tenants withholding payments or asserting legal claims.

The legal situation: landlords are obliged

If you receive the deposit as a bank transfer or cash deposit, you must:

hold it separately from your private assets
keep it protected against insolvency
deposit it with a credit institution
pay interest at the usual rate for savings deposits with three months' notice

The interest earned belongs to the tenant and increases the deposit amount.

Why the separation is so important

Holding the deposit separately protects it against insolvency. If the deposit is not cleanly separated from your own assets, there is a considerable liability risk. In the event of insolvency, the money must not fall into the bankruptcy estate.

Difficulties with the special account

In theory the rule is clear, but in practice a special account can cause a number of problems:

Many banks no longer offer free trust accounts.
Setting one up and managing it creates effort.
Tax certificates have to be processed.
Savings-account interest is low and inflation erodes the real value of the security.

Especially with several units, the administrative effort adds up considerably.

Difficulties with the special account for the rental deposit

A modern solution for landlords: digital rental deposit accounts

Digital solutions such as the free online rental deposit account from heykaution allow the deposit to be managed in a legally secure, insolvency-proof, digital and free way – without a classic special bank account. This fulfils the legal obligation without any additional administrative effort.

More about heykaution

Alternative: setup by the tenant (pledge)

The law allows solutions by mutual agreement. Landlord and tenant can agree that the tenant takes over setting up the deposit themselves.

How the pledge works

1The tenant opens an account or securities account in their own name.
2They sign a pledge declaration in favour of the landlord.
3The bank adds a blocking note, so that withdrawals are only possible with consent.

Benefits for landlords

No trust account of your own required
No administrative effort
Automatic insolvency protection
Legally secure access in the case of justified claims

Important: The pledge must be correctly notified to the bank.

Which forms of investment are permitted?

The usual and permitted forms of investment for the rental deposit are the following:

Rental deposit account / savings book
Overnight money account
Rental deposit securities account (ETFs / shares)
Rental deposit guarantee

As a general rule: your consent is required for alternatives to the classic trust account.

In our blog article, landlords can learn more about the ways to set up a rental deposit in a legally secure manner.

Conclusion: setting up the rental deposit as a landlord

By law, the obligation to set up the deposit lies with the landlord. Especially with several properties or to avoid bank fees, digital solutions such as heykaution are becoming increasingly important.