Whether you earn interest on a security deposit depends almost entirely on where you rent. Roughly 17 states and the District of Columbia require landlords to pay it; the rest do not, which means the landlord keeps whatever the money earns while it sits in an account. Even in states that do require interest, the rule often applies only to certain landlords, certain buildings, or tenancies that last beyond a set length of time.
Does Your State Require It
About a third of states, plus DC, impose an interest obligation. In the remaining states, the landlord has no duty to pay you anything beyond returning the deposit itself, minus any legitimate deductions.
Where interest is required, the mandate often does not reach every landlord. Some jurisdictions apply it only to landlords who own or manage a minimum number of units. Others limit the rule to properties within specific municipalities. A landlord with one rental house and a landlord running a 50-unit building in the same state can face entirely different obligations.
Length of tenancy matters too. Some jurisdictions start the interest clock only after the deposit has been held for six months or a full year. If you move out before that threshold, you may not be owed interest at all. Because the conditions vary so widely, the only reliable check is the landlord-tenant statute in your specific state or city.
How Much You Actually Earn
Jurisdictions take different approaches to setting the rate. Some fix a statutory rate that applies regardless of market conditions. A handful lock in rates as high as 5% per year, which can add up on a large deposit held across several years. Others tie the rate to what commercial banks pay on savings accounts, which in practice often means a few dollars at most. When the rate is pegged to prevailing bank rates, it is typically recalculated each year by a state banking authority or comptroller, so the figure shifts over time.
In low-rate environments, the bank-linked approach produces numbers that barely register. A few jurisdictions set rates well below one-tenth of a percent. Fixed rates give you a predictable return, but even those amounts are modest on a deposit of a few thousand dollars. If no statute or ordinance specifies a rate, the lease itself may set one, though landlords with no legal obligation to pay interest rarely volunteer it.
When Interest Gets Paid
Timing depends on the jurisdiction. Some states require annual payouts, usually on the anniversary of the tenancy. The landlord may send a check, make a direct payment, or credit the amount against the next month’s rent. Other states require payment only at the end of the tenancy, folded into the final deposit refund as a single sum.
One detail catches some tenants off guard. In a handful of jurisdictions, the landlord can subtract a small administrative fee from the interest before passing it along, meant to cover the cost of maintaining the separate account. Where allowed, the fee is typically capped at around 1% of the deposit per year. It is a defined percentage set by statute, not an amount the landlord can decide on its own.
Federally Assisted Housing
If you live in federally assisted housing, there is a separate rule that applies regardless of state law. The property owner must place security deposits in a segregated, interest-bearing account, and the balance must always equal the total collected from current tenants plus accrued interest.1eCFR. 24 CFR 880.608 – Security Deposits The owner must also comply with any state and local interest rules, so you get a federal floor plus whatever your state adds on top.
What Your Landlord Has to Tell You
In jurisdictions that regulate deposit interest, landlords usually have to give you written notice about where your money is held. The notice often includes the name and address of the bank, the account number, and the interest rate being applied. Some states require this within 30 days of collecting the deposit. Others require an annual statement showing the amount of interest earned.
Failure to provide the required notice can carry its own penalty, separate from any penalty for not paying interest. In some states, a missing notice gives you the right to apply the full deposit toward rent, or triggers an automatic penalty, regardless of whether interest was actually owed. If you never received anything in writing about your deposit and your state requires it, that is worth flagging.
Reporting the Interest on Your Taxes
Interest on your security deposit is taxable income, even in small amounts. The IRS treats it the same as interest from a savings account: you report it in the year it becomes available to you, whether you withdraw it or the landlord credits it against rent.2Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses Annual credits get reported each year; a lump sum paid at move-out gets reported in the year you receive it.
Your landlord generally has to send you a Form 1099-INT if the interest paid reaches $10 or more in a calendar year.3Internal Revenue Service. About Form 1099-INT, Interest Income Most security deposit interest falls below that threshold, so you may never see the form. You still have to report the income. The IRS requires all taxable interest to be reported regardless of whether a 1099-INT arrives.2Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses For most tenants, the dollar effect is tiny, but skipping it technically puts you out of compliance.
If Your Landlord Owes You Interest and Won’t Pay
First, confirm you are actually owed interest. Look up the landlord-tenant statute in your state or municipality and check that your situation meets the requirements: right jurisdiction, right number of units, deposit held long enough. Read the lease too. It may contain an interest provision that creates an obligation even where state law does not.
If interest is owed, send a written request that cites the specific statute. Email creates a record, but certified mail carries more weight if the dispute escalates. Name the law, state the amount you believe is due, and set a reasonable deadline. Keep copies.
Penalties for noncompliance can be surprisingly steep relative to the interest itself. The most common remedy lets the tenant recover the unpaid interest through a legal claim, but many states add statutory damages: double or triple the withheld amount, or a flat penalty tied to the deposit for each year of noncompliance. Some states also allow recovery of attorney’s fees, which makes small claims economically viable. Penalties tend to stack when the landlord has broken more than one rule, for example by commingling the deposit with personal funds or skipping required notices alongside skipping interest.
If the landlord ignores your written request, small claims court is usually the practical next step. Filing fees are low, you typically do not need an attorney, and the statutory penalties can make the recovery worth more than the interest alone. Bring your lease, your correspondence with the landlord, proof of your move-in and move-out dates, and a printed copy of the statute you are relying on.