When renting houses and apartments for residential use, landlords routinely require a security deposit from tenants. The purpose of a security deposit is to ensure that the tenant fulfills their obligations under the lease.
These obligations are primarily to pay rent and then to keep the rental unit in good condition and free of damage. If there is damage for which the tenant is responsible, the security deposit ensures that the cost of repairs is covered.
In some states, counties or cities, a tenant may be entitled to the payment of interest on their security deposit. The idea is that if the landlord holds the security deposit in an account of some kind that earns interest, it is fair to require them to pay interest to the tenant.
Although it is only required in a minority of states and locations, some states and cities mandate that a landlord place a tenant’s security deposit in an interest bearing account and pay the interest at set intervals to the tenant. Other jurisdictions may require that the interest be paid only once a year or at the end of the tenancy.
State laws also determine how and when a landlord must return a security deposit to a tenant. They also impose a time limit for the return of the deposit to the tenant. Laws may also specify what kind of itemization a landlord must provide, and whether or not the landlord must pay interest on the deposit.
Fourteen states and Washington, D.C. require interest payments on security deposits are as follows:
- Connecticut;
- Florida;
- Illinois;
- Iowa;
- Maryland;
- Massachusetts;
- Minnesota;
- New Hampshire;
- New Jersey;
- New Mexico;
- New York;
- North Dakota,
- Pennsylvania;
- Virginia;
- Washington, D.C., which is not a state, of course.
Some cities also require landlords to pay interest on security deposits. In other states, landlords do not have to pay tenant interest on security deposits. They are not even required to put the deposit in a separate account. The landlord simply needs to have the money available when the tenant moves out and to follow state rules regarding the return of the deposit.
How Much Interest Do I Get?
Interest rates rise and fall depending on a number of factors related to financial markets and the economy. So, the interest rate is likely to be a small amount, perhaps around 5%. Depending on the laws in the state or municipality in which the property is located, a landlord may be entitled to shop around at different banks and credit unions for the best rate.
How Do I Know Where My Security Deposit Is Located?
Some jurisdictions require that the landlord provide the tenant with notice of where their deposit is invested and the interest it earns. Alternatively, a person can always ask their landlord for the information.
Some jurisdictions require a landlord to place security deposits in accounts that are separate from the landlord’s other business and personal accounts. If a landlord co-mingles security deposits with their own funds where the law does not allow this, they may be subject to penalties.
When Do I Get My Interest?
The states and cities that require the payment of interest on security deposits generally specify when and how the interest must be paid. Generally, these laws require payment annually or at the end of the lease term. The interest might be payable as a direct payment or as a credit on the rent.
How Do I Get Paid?
Depending on the state or city in which the rental is located, a person may be able to choose between a cash payment or a credit on their rent.
In the state of Maryland, a landlord or mobile home park owner must pay interest to residential tenants when they return their security deposit. The amount is specified by state law and must be the greater of either the daily U.S. Treasury yield curve rate for one year, as of the first business day of each year, or 1.5%.
The state provides a calculator online to help tenants determine the interest due on a security deposit for a particular period of time. The tenant can enter the start date, which is the date on which the security deposit was given to the landlord, the end date of their tenancy, the county in which the rental unit is located and the amount of the security deposit. The tenant can then know how much they are owed by their landlord in interest.
Interest only needs to be paid on security deposits of $50 or more, and accrues at monthly intervals from the beginning of the tenancy. The payment of interest is not required unless the landlord has held the security deposit for at least 6 months.
In New Jersey, landlords must keep security deposits in a bank account that is separate from their other business and personal accounts. The landlord must tell the tenant the name and address of the financial institution where the deposit is, the type of account in which it is held, the current rate of interest and the amount of the deposit. The landlord must do this within 30 days of receiving the deposit.
Landlords with 10 or more rental units in New Jersey must invest security deposits as specified by state law or place deposits in a money market fund that is insured by the Federal Deposit Insurance Corporation (FDIC). Landlords who have fewer than 10 units may place security deposits in an interest-bearing account in any New Jersey financial institution that is insured by the FDIC. All landlords may pay tenants interest earned on the security deposit account annually, or credit interest earned toward the rent.
Is There a Law about Interest on Security Deposits Where I Live?
Laws regarding the payment of interest on security deposits exist in the 14 states identified above and Washington, D.C. As for municipalities, local rent control ordinances in some cities require a landlord to pay interest on security deposits. The rent control ordinance in San Francisco, for example, requires that interest on security deposits be paid to a tenant annually.
In Los Angeles, interest must be paid on any security deposits held for at least one year by landlords with rent-controlled units. The interest can be paid either monthly or yearly and it can be paid either in the form of a direct payment to the tenant or as a credit on rent.
The law applies to dwellings occupied by the same tenant for more than 30 consecutive days. So, payment of interest would not be required on security deposits for short-term rentals, i.e. those that last for less than 30 days.
The housing authority in a person’s city or county should know whether local law requires the payment of interest on security deposits.
Do I Need a Lawyer’s Help with Getting Interest on My Security Deposit?
If you need to know whether you are entitled to interest on your security deposit or are having trouble getting your landlord to fulfill their obligation to pay interest, you should consult an experienced landlord-tenant lawyer in your community.
Your lawyer will know whether state or local laws require the payment of interest on security deposits and, if so, when and how these payments should be paid. Your lawyer can help you get your security deposit back, if your landlord has not returned it to you, with interest if local law requires it.
