Security Deposit Account or Insurance?

Should you lock up thousands of francs in a deposit account, or just get insurance? This guide explains when you should use a rental deposit account, and when getting security deposit insurance makes sense.

Which is the better solution?

The rule of thumb: If you can afford to put down a deposit, using an account is generally the better option. Money held in a bank account can actually grow over time, if the account pays interest (currently many Swiss rental deposit accounts do not). Security deposit insurance, on the other hand, always costs you money.

What happens if the landlord claims my deposit?

If your landlord claims all or part of your deposit, it makes no difference whether you have a security deposit account or insurance. Deposit insurance only protects your landlord from losses, not you. Security deposit insurance is not personal liability insurance. The insurance company does advance your landlord the money you owe them, but you are liable to repay this advance to the insurance company in full and may be charged administrative fees to boot.

Ultimately, you pay for the insurance and for any damages to your landlord which you are responsible. With a security deposit account, you pay the deposit in advance but, if you do not leave any unpaid rent or damages, you get back that money plus possible interest.

Is a security deposit account totally free of charge?

Depending on the bank, there may be fees for opening, maintaining, or cashing out the account. Some Swiss banks do not charge any fees at all, but the downside is that many accounts currently do not pay interest. So in many cases you have no costs, but your money also sits idle and does not generate yields. The interest rates and fees at major banks are listed in the moneyland.ch guide to security deposit accounts.

What are the advantages of security deposit insurance?

Rental deposit insurance provides a means of covering your deposit when you cannot afford to put down the required money up front. If you do not have the amount of money required, then getting security deposit insurance is worth considering.

If you need an insurance, just use the interactive security deposit comparison on moneyland.ch to find the cheapest offer for your specific needs.

Are there other alternatives?

If you have a close friend or relative who is willing to give you a private loan for your deposit at a low interest rate, you will likely save money compared to get security deposit insurance. This is always the case if, for example, you can get an interest-free private loan secured by the money in your rental deposit account. As long as you make all your payments and cover damages correctly, you will get the full deposit back. You can then repay the loan in full, if you have not already repaid it over the course of your rental.

How high are the total costs of security deposits?

The cost of security deposits varies depending on whether you use an account or insurance, and which one. It also depends on whether or not you inflict damages on your rental home, and whether or not these have to be covered by your deposit.

If the landlord claims your deposit, it makes no difference whether you use insurance or an account. The damages which you have to cover will be exactly the same in both cases – unless the insurance charges extra administrative fees. That is why it is normally better to cover all repairs out of your pocket instead of having the landlord claim on the deposit. If you have personal liability insurance, you can claim reimbursements for all or part of what you pay towards liability claims for damages.

Example: You move into an apartment with a rent of 1500 francs per month. The landlord requires a deposit equal to three months’ rent, or 4500 francs. If you use a security deposit account, you will need to pay 4500 francs up front at the start of your rental. If you move out after 10 years without leaving unpaid damages, your costs will be 0 francs. For this example, moneyland.ch assumes that the account does not have either interest or fees.

If instead you took out affordable security deposit insurance, you would only need to come up with 189 francs at the start of your rental. But over 10 years, the insurance would cost you 1890 francs. You will spend that amount even if you do not inflict any damages.

If your entire deposit ends up being claimed by your landlord toward paying for damages, your costs would go up by 4500 francs, regardless of whether you use an insurance or account. If you use insurance, you may pay an additional administrative fee when claims are made.

Can a landlord demand that I get security deposit insurance?

No, the Swiss renters association told moneyland.ch that requiring tenants to take out security deposit insurance is not allowed in Swiss laws governing civil obligations. The acceptance of your application to rent a home cannot be contingent on whether or not you get security deposit insurance.

One reason why that is important is that it is theoretically possible for insurance companies to offer decision-makers (such as property management groups) sales commissions to encourage them to onboard applicants as insurance customers. In this case, your landlord or property manager would have an incentive to push a deposit solution which you do not need and which you as the renter have to pay for.

But if you cannot afford to pay the required deposit up front, you as the renter can request to use security deposit insurance. However, the landlord is not required to accept.

Can I switch from security deposit insurance to a deposit account?

That is generally possible. If you manage to save up enough money to pay down your deposit, then moving from insurance to a security deposit account is worth it.

You will have to review your insurance agreement to see when you can cancel your contract. In most cases, your insurance can only be suspended on a specific date each year, and you must give notice at least three months before this date. In some cases, minimum insurance terms of several years may apply, and you can only suspend your contract at the end of the term (or when you move out of your rental home). You can find all of these details on your insurance policy and in the insurance terms and conditions.

Normally your landlord must return the certificate of insurance to the security deposit insurance provider before your insurance can be terminated. So if you want to switch to a security deposit account, you will have to discuss this with your landlord first. Your landlord will have to open the security deposit account. The same applies if you want to change insurance providers – because you find a cheaper security deposit insurance, for example. The landlord may demand that you place the money in a security deposit account before you suspend the insurance.

More on this topic:
Compare Swiss security deposit insurance offers now
Guide to using Swiss security deposit accounts for home rentals