Deposit Guarantee Bond Instead of Cash: Saving Your Start-up Capital

The single biggest item in your start-up capital for a first apartment is usually the deposit, up to three months' net Kaltmiete in one go. If you don't want or can't raise that money all at once, you have a second option beyond installment payments under Section 551 BGB: a deposit guarantee bond (Kautionsbürgschaft).

How a deposit guarantee bond works

Instead of depositing the full amount in cash, a bank or insurer issues a guarantee certificate that's handed to the landlord as security. The landlord gets the same protection as with a cash deposit, but the tenant doesn't have to raise a large lump sum, paying an ongoing premium instead.

What it costs

According to deposit-insurance comparison portals, the annual premium usually falls between 4% and 10% of the actual deposit amount. For a €1,500 deposit, that's roughly €75 to €150 a year. Importantly, this premium isn't refunded, even if the landlord never draws on the bond, unlike a cash deposit, which is paid back in full after a proper move-out.

Who it pays off for

A deposit guarantee bond makes the most sense when the capital you'd otherwise tie up is more urgently needed for other first-apartment expenses, like furniture or moving costs, than for a locked-up deposit sum. If you can easily raise the cash deposit and plan to stay in the apartment for several years, a bond ends up costing more over time, since the annual premium, unlike an interest-bearing cash deposit, never pays for itself.

What the landlord has to accept

A landlord can't generally refuse a deposit guarantee bond if it's issued by a bank or an established insurer and is an unconditional guarantee, where the guarantor pays without first having to take the tenant to court. In practice, most landlords accept established providers, though checking the lease before choosing your security deposit method is still worthwhile.

Our first rent and deposit payment guide explains the total deposit amount and how installment payments under Section 551 BGB work, and our first apartment cost guide has the full cost breakdown for a first apartment.

Frequently Asked Questions

What does a rental deposit guarantee bond cost?

Usually 4% to 10% of the deposit amount per year, depending on the provider and payment method.

Do I get the bond premium back?

No, unlike a cash deposit, the annual premium isn't refunded, regardless of whether the landlord ever draws on the bond.

Does the landlord have to accept a deposit guarantee bond?

They generally can't refuse an unconditional guarantee from a bank or an established insurer, though checking the lease first is still worthwhile.

Does a bond pay off in the long run?

Usually not: if you can raise the cash deposit and stay in the apartment for years, a bond ends up costing more over time than the one-time, later-refundable cash deposit.