What’s a Surety Bond?

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Renting a new apartment can be a financially draining experience. Referral fees, moving costs (boxes, moving truck), furniture and decorations all add to the cost of the move. However, some states offer a way to reduce those costs in the form a surety bond. A surety bond is an alternative to a security deposit – you pay a small upfront premium, often as little 10-15% of an equivalent security deposit. Depending on your financial resources, these bonds may be a good solution for you. Here are some ways to determine if they’re right for you.

A little money now, potentially a lot later
While surety bonds and security deposits accomplish the same thing, they function very differently. A security deposit requires you to give your landlord a set amount of money, often as much as two months rent, before you can rent an apartment. This money guarantees the landlord that he or she will not have to pay for any damage you cause or rent you fail to pay. A surety bond only requires you to put up a fraction of that amount when you sign the lease to guarantee the apartment. However, there are three important differences.
1. The fee, ranging from a minimum bond of $87.50 to 17.5 percent of the going security deposit, for a surety bond is non-refundable, and is kept by the company issuing the bond – not the landlord. With a security deposit, when you move out you may receive a refund, after the landlord deducts expenses incurred to get your apartment ready for the next resident.
2. A surety bond offers coverage for a fixed period, typically 5 years. A security deposit is typically good for the life of the lease. If you’re looking for a larger apartment in the same building, both options will generally remain in effect, and you only owe an amount proportional to the increase in rent.
3. Last, and perhaps most important, is that you will still be financially liable for any damages to the apartment. However, instead of paying the landlord for damages, you will pay the company issuing the surety bond.
How do I tell if it’s for me?
If you move every 1-2 years, the non-refundable surety bond fees will add up, possibly even exceeding the amount of a security deposit.  If you plan on staying put for a while, you might do better by paying the fee for the surety bond. If you have the cash, you could invest the remaining amount in a savings account, money market account, CD (certificate of deposit) or other investment vehicle. Should you need the money for an emergency, it will be available to you. You just need to be remember that you may end up owing money for damages or unpaid rent at the end of the lease, so you might need to use this money for that purpose. For tips on owing as little as possible when you move out, click here.

That sounds good. How can I use it?
If a surety bond sounds right for you, there are a few things to consider. First, not all states allow surety bonds. You will have to do some research to see if they are available in your state. A good place to start is with SureDeposit, one of the largest bond issuers.  Many people acquire surety bonds directly through their landlord or management company.  Contact your landlord to discuss this option.

8 Responses to “What’s a Surety Bond?”

  1. March 06, 2007 at 2:30 pm, Guest said:

    Most bonding companies will not issue surety bonds for apartment deposits. If you are in need of the bond and SureDeposit can do it for you, I wouldn’t hesitate to use them!

    Reply

  2. March 30, 2007 at 1:57 pm, Guest said:

    This is definitely helpful. A lot of times when you are moving you dont have the funds to come up with a large amount for the security deposit. As long as you keep the apartment nice you won’t have to pay anything back when you move out. A lot of people would rather pay a smaller fee and not get it back then come up with a large sum and wonder if they will get the full amount back. Definitely a nice option for renters.

    Reply

  3. August 07, 2007 at 12:04 pm, Guest said:

    This is definitely exactly all the information I needed – thanks!

    Reply

  4. August 23, 2008 at 9:03 pm, Guest said:

    I know someone who recently applied for an apartment in the Las Vegas area and was told he had to give a security deposit and a security bond,(probably was surety bond and he misunderstood) can they ask for both?

    Reply

  5. January 29, 2009 at 5:40 pm, Liz said:

    Can surety bonds be used for commerical spaces too?

    Reply

  6. December 17, 2011 at 4:52 pm, Jess said:

    It is illegal to charge more than 1.5 months’ rent as a security deposit.
    Security deposits are NOT to prepare your apartment for the next tenant. That is the landlord’s financial responsibility.

    Reply

  7. March 15, 2012 at 9:41 am, Chuck Anderson said:

    This is a helpful post for people who only rent their place and have no funds in buying their own house. This is beneficial. I would like to share his post to my colleagues. Thank you!

    Reply

  8. October 23, 2012 at 8:23 pm, Jeremy R said:

    Hello!
    Just a general question for if anyone knows.

    I purchased a Surety Bond here in Arizona in lieu of security deposit for moving into my former apartment complex. I am being charged for new carpet in my apartment to the amount of approximately $400. Do I pay back the apartment complex directly OR do I pay back the Surety Bond company??

    Reply

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