Multiple security deposits, usually shortened to MSDs, are one of the few ways to lower a lease's money factor that you get back at the end. When they are available, they are often worth using.

This builds on money factor on a car lease, so read that first if the term is new.

How MSDs work

You pay several refundable security deposits at the start of the lease. Each deposit is typically your monthly payment rounded up to a set amount. In return, the lender reduces your money factor by a fixed amount for each deposit.

At the end of the lease, assuming you have not defaulted, the deposits are returned in full.

A typical structure looks like this:

  • Deposits allowed: up to 7 to 10, depending on the lender
  • Each deposit: the monthly payment, rounded up to the next $25 or $50
  • Money factor reduction: a fixed amount per deposit, for example 0.00007

A worked example

Say your payment is $480 and the lender allows 7 deposits of $500, each cutting the money factor by 0.00007.

  • Deposits paid: 7 x $500 = $3,500
  • Money factor reduction: 7 x 0.00007 = 0.00049
  • That is roughly 1.2% APR off the rate (multiply by 2,400)

On a lease with, say, $45,000 of combined capitalized cost and residual, the saving is about $22 a month, or around $790 over 36 months.

So you tie up $3,500 for three years and earn about $790 on it, which works out to roughly 7% a year, with the principal returned. That is hard to beat anywhere with comparable safety.

How to value the saving

The right comparison is what that money would otherwise earn.

  1. Work out the total money factor saving over the lease, in dollars.
  2. Divide by the total deposits and the number of years.
  3. Compare that annual return with a savings account or other safe option.

If the MSD return is higher, use as many deposits as the lender allows. If it is lower, skip them.

The catches

Availability. Only a small number of lenders offer MSDs, and programs come and go. A lender that offered them last year may not now. Always ask, and do not assume.

The money is tied up. You get it back at the end, not before. Do not use money you might need.

Deposits are applied to what you owe. If you default, or owe charges at lease end for excess mileage or damage, the lender can keep some or all of the deposits to cover them.

They do not help a total loss. If the car is written off, you generally get the deposits back, but they do not reduce what the insurer pays. Keep your gap coverage in place.

The saving scales with the car. On an inexpensive car the dollar saving can be small. MSDs matter most on higher priced leases.

MSDs versus a one-pay lease

Both lower the money factor in exchange for money up front. The difference is that MSDs are refundable and a one-pay lease is spent. MSDs are usually the lower risk option if both are available.

The short version

Multiple security deposits are refundable deposits that lower your money factor. When a lender offers them, the effective return is often better than a savings account, and you get the money back.

Few lenders offer them and availability changes. If you want us to check whether they are available on the car you are considering, get in touch.