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The apartment community has given me two options based on the credit risk. I need to pay them a refundable deposit of $1330/- at the time of move-in. It is completely refundable at the time of move-out and they can deduct any repair charges from this deposit. No annual interest will be paid on this deposit.

Alternatively, I can go through a bond agency and deposit $175/-. This amount is non-refundable. Which one is better for me?

Additional information: 1. I have to pay for the damages calculated by the landlord at the end of the lease term irrespective of the $175/- that I pay to the bond provider. In other words, the 175 is just a fee for me to avoid paying $1330/- upfront and the bondholder https://www.suredeposit.com/Public/default.aspx# takes that as a fee. In speaking with existing residents and those who moved out, it looks like they charge anywhere from $600/- to a whopping amount of $1330/-. I live in UTAH. 2. I have an existing CD in place that pays 2.5% APY. I can deposit the $1330/- to that one. I expect to live in this apartment for the next 3 years at least given that we are going to a better school district.

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    I'm just going to throw this out there, just because something is refundable doesn't mean it will be refunded – quid Mar 28 at 17:04
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    1. Is not paying annual interest legal in your area? In some states they're required to pay it. 2. How much of a financial burden will each put on you? 3. How long are you planning/likely to stay there? Does that change the bond charge? 4. What are you planning to do with the extra money? Keep it in a 0.05% checking account? A 2–2.5% account? Treasury bonds? Keep it in index funds? Day trading? – Kevin Mar 28 at 17:23
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    I am missing what a bond company has to do with the nonrefundable deposit. Why wouldn't you be giving the money directly to the apartment mgr? In conjunction with Pete's answer and quid's comment, how do they determine normal wear and tear vs "damage"? They could easily charge over $175 to fill nail holes, paint, clean carpets and surfaces, etc. even if you think it is "perfect". – topshot Mar 28 at 17:49
  • What is the agreement with the "bond agency"? Would they come after you for the rest of the $1,330 if you leave the apartment in shamles? – D Stanley Mar 28 at 17:59
  • Kevin - I have a CD open already with 2.5% interest rate. I can put that $1330/- in that one. So, I have a system already in place earning 2.5% rate. TopShot, the bond company is just a replacement to not pay the $1330/- amount up front. But the fee is not refundable and I still have to pay for the damages when I move out. In other words, 175 dollar is just a fee for not paying 1330 up front. – Selva Mar 28 at 18:09
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In most states they are required to pay you interest on money that's in escrow. That being said, the amount won't be significant.

In the grant scheme of things, the interest you'll be earning from that CD is also not significant.

How much you end up paying for damages at the end of the lease is also irrelevant. Some have pointed out that some apartment lease companies might be predatory and try to charge you unreasonable fees - if that's the case, you should reach out to your local municipal or state agencies and file a complaint.

For example, the office of attorney general in my state has a section that deals with housing complaints. (ask me how I know)

In the end it's really up to you. If you think paying $175 is worth it to keep that money around in case of an emergency, then go ahead and pay it. If you can afford paying the $1300 without causing yourself any financial hardship, then go ahead and pay it.

I personally think that $175 per year is too much, but if it's $175 for the 3 years you plan to stay in the apartment, then that's OK.

Also, you should ask the leasing office if they'll give you some of your deposit back if you renew at the end of the first year. Usually arrangements like that can be made conditioned on paying your rent on time. (If they are willing to do that, make sure the arrangement is in writing)

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Lets say you are meticulous and will return the apartment in perfect condition. Also lets say that the landlord will not charge you for any repairs.

During the year, the 1330 will earn about $28 in interest. In that case you would be much better off allow the apartment to hold the 1330 as you will only lose $28.

On the other hand, lets say that you will leave the apartment dirty, and you are likely to forfeit half your deposit. In that case you are far better off paying the bond of 175. You may forfeit your deposit because the landlord will charge you for questionable "damage" to the apartment.

So in order to make the most efficient decision you need to come up with a probability of you not receiving your full deposit back. From there you can do an expected value calculation.

  • Have added more details. I expect to live in this apartment for at least 3 years – Selva Mar 28 at 18:14
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    If they haven't put down a deposit, they're still liable for damages. It may be more difficult for the landlord to get the money, but it's still going to be an outstanding debt. – Acccumulation Mar 28 at 20:57

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