Deposit protection insurance vs escrow: what actually protects your money?

You've found a builder you like. The quote is sensible, the start date works, and now they've asked for a deposit. Somewhere between reading the contract and reaching for your bank details, a quiet question surfaces: if this goes wrong, do I actually get my money back?

It's the right question. And the honest answer is: it depends entirely on which protection route you use, because there are four of them, and they protect against completely different things.

Most articles about builder deposit protection push one product. This one compares all four routes side by side, including the free one, and is honest about where each one wins.

The question behind the question

When people search for deposit protection insurance for building work, they usually think they're buying one thing: money back if it all goes wrong. But "wrong" comes in several flavours:

• The builder goes bust before work starts.
• The builder starts, then walks off site.
• The work gets done, but badly.
• You and the builder disagree about whether a stage is actually finished.

No single mechanism covers all four. Section 75 is a legal right that helps you claw money back after the event. Insurance compensates you after one narrow, named event. Retention gives you leverage at the end of the job. Escrow stops money moving until each stage of work is approved. Knowing which failure each route actually addresses is the whole game.

Route 1: Section 75, the free one on your credit card

If any part of the payment is made by credit card, and the purchase price is over £100 and up to £30,000, Section 75 of the Consumer Credit Act makes your card provider jointly liable with the builder for breach of contract or misrepresentation. In plain English: if the builder takes your deposit and vanishes, you can claim the money back from the card company instead of chasing the builder.

It costs nothing. You don't sign up to anything. And unlike most insurance products, it isn't capped at a slice of your deposit. A successful claim can recover what you actually lost, within the £30,000 purchase limit.

The honest limits. First, the builder has to accept credit cards, and many small building firms don't, because card fees eat into tight margins. Second, it's a claims process after the fact: your money has already gone, and you're asking for it back, which can take months. Third, you have to show a breach of contract or misrepresentation. A builder who is slow, messy or mid-argument with you hasn't necessarily breached anything yet, and the card provider can push back.

For a smaller job where the builder takes cards, though, this is genuinely hard to beat. Free protection is free.

Route 2: deposit protection insurance, the one sold with trade-body badges

This is the product most people mean when they say "deposit protection". It's typically sold alongside trade-body memberships: the builder joins a scheme, the scheme includes or offers an insurance-backed guarantee, and part of that guarantee covers your deposit.

Two details matter enormously and rarely make it onto the badge. The first is the cap: deposit cover is typically limited to a percentage of the contract value or a fixed ceiling, whichever is lower. Schemes vary, so read the actual policy document, not the logo on the builder's website.

The second is the trigger. Most of these policies pay out only if the builder becomes insolvent before the work starts. That is a real risk, and a fair thing to insure against. But it is narrow. A builder who walks off site while still trading? Not covered. Poor workmanship on the stage your deposit paid for? Not covered. A dispute about whether the work is finished? Not covered.

To be fair to the product: where the trigger fires, insurance does exactly what it promises. If builder insolvency is the risk that worries you most, this is the tool built for precisely that event. And the workmanship guarantee often bundled with it, covering defects that appear after completion, can be genuinely worth having.

The mistake isn't buying it. The mistake is believing the phrase "deposit protection" covers more than the policy document says it does.

Route 3: retention, holding money back at the end

Retention is the simplest idea on this list: you hold back a small slice of the contract price, typically 3 to 5%, until the snagging list is cleared. It's standard practice in commercial building contracts, and there's no reason a domestic project can't use it, provided it's written into the contract before anyone signs.

What it protects is the end of the project. A builder with 5% still on the table has a real incentive to come back and fix the sticking door and the cracked tile. Without it, snags can drift for months.

What it doesn't protect is everything else. Retention does nothing for your deposit and nothing mid-project. If the builder disappears at first fix, the few percent you were planning to hold back at the end is irrelevant. Retention is a finishing tool, not deposit protection.

It's free, and reasonable builders accept it. Keep it modest: a fair retention is a few percent to get snags done, not a bargaining chip.

Route 4: escrow and milestone payments, the prevention route

The first three routes share a shape: money leaves your account, and if something goes wrong you try to get it back, or you kept a bit back to begin with. Escrow flips that. Your money is committed, and the builder can see it's real, but it sits away from both of you until each stage of work is approved. If the idea is new to you, start with our guide to escrow for home renovations.

With Renopay, you fund each stage before work on it starts, and the money is held securely. Client funds are held by OPP, an FCA-authorised electronic money institution. Your builder sees proof that the money for the stage exists before they order materials, which removes the main reason builders ask for big deposits in the first place. As each milestone is completed and you approve it, that stage's payment is released. If you disagree about whether a stage is done, only that stage is paused until the disagreement is resolved, with an independent RICS assessment available if you can't settle it between yourselves.

The honest limits. It isn't free: homeowners pay 1% per milestone. Both parties have to agree to use it, so it's a conversation to have before contracts are signed, not after. And escrow does not guarantee workmanship. It ties payment to approval; it doesn't make a bad plasterer good. What it does is give you a say before a stage of work gets paid for.

If the reason you're reading this is that a builder has asked for a large upfront deposit, it's also worth knowing there are alternatives to paying a builder deposit at all.

The four routes side by side

Here's the comparison nobody puts on one page:

Which route should you actually use?

It depends on the size and shape of the job.

For a small job (a bathroom refit, a repair, anything paid in one or two payments), a credit card may honestly be all you need. If the builder takes cards and the price sits within the Section 75 range, you get a serious legal protection for nothing. Don't pay for a product to solve a problem the law already solves for free.

For a larger project with staged spend (an extension, a loft conversion, a full refurb), the calculation changes. Your exposure isn't one deposit; it's a series of payments over months. Insurance compensates you after one specific failure, and only up to its cap. Escrow prevents money from moving before each stage is approved. Prevention and compensation are different jobs, and on a big project prevention matters more, because getting money back after the fact is slow even when it works.

And the routes stack. Belt and braces on a serious project looks like this: a written contract, a fair payment schedule, and one deliberately chosen protection route on top. If the builder carries an insurance-backed guarantee through their trade body as well, so much the better. We've covered how to structure the payments themselves in our guide to paying a builder safely.

The short version

Ask the money-back question before the money moves, not after. Section 75 is free and excellent where it applies. Deposit protection insurance is real but narrow. Read the policy, not the badge. Retention protects the end of the job. Escrow protects every stage, for a fee, by making payment follow approval.

Whichever route fits your project, choose it on purpose. The riskiest position isn't picking the wrong protection. It's assuming you have protection you never actually had.

Frequently asked questions

Does deposit protection insurance cover a builder walking off the job?

Usually not. Most deposit protection policies pay out only if the builder becomes insolvent before the work starts. A builder who walks off site while still trading, poor workmanship on the stage your deposit paid for, and disagreements about whether the work is finished are typically outside the cover. Schemes vary, so read the policy document itself rather than relying on a trade-body badge.

Does Section 75 cover building work paid for by credit card?

It can. If any part of the payment is made by credit card and the purchase price is over £100 and up to £30,000, Section 75 of the Consumer Credit Act makes the card provider jointly liable with the builder for breach of contract or misrepresentation. The builder has to accept cards, and it is a claim made after your money has gone, which can take months.

Does escrow protect against poor workmanship?

Not directly. Escrow ties payment to approval: the money for a stage does not move until you approve the work, which gives you a say before each stage is paid for. It does not make the work itself any better. For snags at the end of the job, a retention of a few percent held back until they are fixed gives you extra leverage.