In 17 states, landlords are required to provide interest on held security deposits. However, interest may only be required in certain situations, like when the security deposit is held longer than six months.
Some cities and towns have regulations regarding interest on security deposits that exceed what is required by state law. For example, landlords in Los Angeles and San Francisco are required to provide interest, but California has no such regulation.
Collecting and Paying Interest on Security Deposits
In the states that require paying interest on security deposits, the most common amount that the landlord has to pay is the actual interest earned by the account—such as in Iowa.
However, it gets more complicated when landlords have to pay a percentage set by the state. For example, landlords of mobile homes in Arizona must pay 5% per year. If the landlord owns several units, this can get expensive and the landlords must invest the money wisely in order to pay out that 5% and not go out-of-pocket (or require a much smaller deposit up front).
What Do Landlords Have to Pay Interest On?
The general rule for states that require paying interest is that landlords have to pay on:
- Security Deposit
- Prepaid Rent. Many landlords collect the final month of rent in advance, which is considered prepaid rent. Landlords can also collect prepaid rent when a tenant desires to pay their rent for several months in advance. Landlords may accept having to pay interest on this money as the trade-off for the large sum of money earned up front.
States Without Interest Payment Laws
Landlords in states without security deposit interest payment laws have no requirement to pay interest on money collected up front. However, some landlords may offer this as a perk to entice renters to their property. If they advertise that the renter will get the actual interest earned on the money, then the landlord isn’t out anything.
Arizona Security Deposit Interest Requirements
When: Landlords in Arizona are required to provide interest when the rental unit is a mobile home.
How Much: 5% per year.
Connecticut Security Deposit Interest Requirements
When: Landlords in Connecticut are required to provide interest as long as the rental unit is not a dorm or mobile home.
How Much: Determined by the Department of Banking.
Florida Security Deposit Interest Requirements
When: Landlords in Florida are required to provide interest when they choose to hold security deposits in an interest-bearing account or if a surety bond is posted. Landlords can choose a non-interest-bearing account, in which landlords are not required to provide interest.
How Much: Landlords can choose to provide 75% of the actual interest earned by the bank or 5% per year.
Illinois Security Deposit Interest Requirements
When: Landlords in Illinois are required to provide interest when they own 25 or more units (either in one building or in a complex of buildings) and the security deposit is held for six months or longer.
How Much: Changes annually (0.01% for 2023).
Iowa Security Deposit Interest Requirements
When: Landlords in Iowa are required to provide interest after five years and only when landlords choose to hold security deposits in an interest-bearing account. Landlords can choose a non-interest-bearing account.
How Much: Actual interest earned by the account.
Maine Security Deposit Interest Requirements
When: Landlords in Maine are required to provide interest when the rental unit is a mobile home.
How Much: Actual interest earned by the account, but not less than the Federal Reserve Bank, secondary market, annual interest rate on a 6-month certificate of deposit.
Maryland Security Deposit Interest Requirements
When: Landlords in Maryland are required to provide interest when the security deposit exceeds $50 and is held longer than six months.
How Much: Daily U.S. Treasury yield curve for one year or 1.5% per year, whichever is greater (see interest calculator).
Massachusetts Security Deposit Interest Requirements
When: Landlords in Massachusetts are required to provide interest when the security deposit is held for one year or longer.
How Much: 5% per year or the actual rate of interest earned by the account, whichever is lower.
Minnesota Security Deposit Interest Requirements
When: Landlords in Minnesota are required to provide interest any time a security deposit is collected.
How Much: 1% per year.
New Hampshire Security Deposit Interest Requirements
When: Landlords in New Hampshire are required to provide interest when the security deposit is held for one year or longer.
How Much: Standard interest rate for a savings account at the financial institution where it is being held.
New Jersey Security Deposit Interest Requirements
When: Landlords in New Jersey are required to provide interest when they collect security deposits for 10 or more rental units.
How Much: Actual interest earned by the account.
New Mexico Security Deposit Interest Requirements
When: Landlords in New Mexico are required to provide interest when the security deposit exceeds one month’s rent.
How Much: Passbook interest permitted to the savings and loan associations in New Mexico by the federal home loan bank board.
New York Security Deposit Interest Requirements
When: Landlords in New York are required to provide interest when they collect security deposits for a building with six or more units.
How Much: Prevailing rate for similar accounts, except landlords can keep 1% of the interest earned as an administration fee.
North Dakota Security Deposit Interest Requirements
When: Landlords in North Dakota are required to provide interest when the security deposit is held for a lease term longer than nine months.
How Much: Actual interest earned by the account.
Ohio Security Deposit Interest Requirements
When: Landlords in Ohio are required to provide interest when the security deposit exceeds one month’s rent and is held for six months or longer.
How Much: 5% per year, but only on the portion of the security deposit that exceeds one month’s rent.
Pennsylvania Security Deposit Interest Requirements
When: Landlords in Pennsylvania are required to provide interest after two years.
How Much: Actual interest earned minus 1% as an administration fee.
Washington D.C. Security Deposit Interest Requirements
When: Landlords in Washington D.C. are required to provide interest after 12 months.
How Much: Statement savings rate of the financial account on January and July 1st.
