What’s The Difference Between A Bond And A Deposit?

Aug 5, 2019
Reading Time: 3 minutes
Written by Paul Taylor

We make all kinds of payments in life. Some are business related, whilst others are personal. Some are continuous, whilst some are one off. In any event, there is no way to avoid them. Accordingly, being familiar about the different types of payments is a good way to give yourself an advantage and keep on top your finances. On the surface, a bond and a deposit may appear to be much the same. However, there are a number of differences that set them apart. Although these occur most commonly in respect of property leases and tenancy agreements, they can exist in a number of different situations. In this article, we’ll discuss what the difference is between a bond and a deposit.

Main differences

The difference between a bond and a deposit can depend largely on the situation. Their main difference is their purpose and function. It follows that some of the other main differences between them manifest in the following ways:

  • Bonds are a type of security interest, as an obligation to pay a sum or to perform a contract
  • A deposit is an initial payment. They show good faith and can reserve something for purchase
  • Therefore, a bond is refundable upon certain conditions. For example, providing a rental bond protects the landlord in the event that a tenant damages the property. If the property remains undamaged upon completion of the lease period, the tenant then receives the bond back
  • Deposits are non-refundable. This is because they are credited towards future payments.
  • A bond will usually only be given upon executing an agreement
  • A deposit can be given prior to any signed agreement to secure the agreement
  • The time these payments are made differs
  • A bond will almost always be a requirement in a rental context, deposits are optional.
  • The relevant authorities monitor lodged bonds. Whereas there is no oversight for deposits per se
  • Accordingly, there is greater external regulation of bonds than there is that of deposits

Things to remember for bonds

Bonds are most common when leasing property. Given they serve as a security interest, it is important that you fulfill the conditions of the lease should you wish to receive your bond back. This usually means paying all rent owed and preserving the condition of the property. Different state laws govern the leasing process and requirements for landlords and tenants in each jurisdiction. It is therefore important that you read about these laws and familiarise yourself with the process in the state you are in.

Points to consider for deposits

In contract law, a deposit constitutes valuable consideration. What this means is that by giving a deposit you are essentially agreeing to a contractual exchange. Essentially, once you have given a deposit, it is very difficult to renege on a deal. It is therefore important that you are quite certain about a purchase or agreement prior to making a deposit. Sometimes, particular contracts may state that the deposit is refundable should the exchange not eventuate. However, it is very important to check so that you are not bound to something you are apprehensive about. Nevertheless, if the product, service or rental space is falsely represented or is misleading, the deposit may be refunded. If you are unsure about the terms of an agreement, it may be wise to consult with a contract lawyer.

As you can see, there are a number of key differences between a bond and a deposit. Knowing these differences is useful in both your personal and professional life. Each set of circumstances can be unique, and require the appropriate discretion. If you are unsure about your situation concerning either one of the two, it is always wise to consult a lawyer for advice.

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