Security deposit interest requirements by state apply in only about 15 states plus the District of Columbia: Connecticut, Florida, Illinois, Iowa, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, and Pennsylvania. If you rent anywhere else, your landlord has no obligation to pay you a cent of interest on your deposit unless a city or county ordinance says otherwise. A handful of other states require interest only for specific property types, such as mobile homes.
Which Tenants Actually Qualify Within Those States
Being in a listed state is not enough on its own. The mandate often comes with conditions that cut out large groups of renters.
Building size is one common filter. Illinois limits the requirement to properties with 25 or more units. New York applies it to buildings with six or more units. If you’re in a small building in one of those states, the interest rule may not reach you.
How long the deposit has been held matters too. Pennsylvania only requires interest after the deposit has been held for more than two years. North Dakota requires it only on deposits held nine months or longer. New Hampshire sets the threshold at one year. A short tenancy can land outside the rule even in a state that otherwise mandates interest.
Owner-occupied small buildings are frequently carved out as well. If your landlord lives in a two- or three-unit building and rents the other units, many states exempt them from the interest requirement entirely.
Commercial leases are a boundary worth noting: the vast majority of states impose no statutory obligation for landlords to pay interest on commercial security deposits. Unless your commercial lease includes an interest clause you negotiated, the landlord keeps whatever the deposit earns.
How the Rate Is Set
States that require interest fall into two camps.
Some use a fixed statutory rate that doesn’t move with the market. Ohio and Massachusetts use a 5% rate, though Massachusetts caps it at the lesser of 5% or the actual rate earned. Minnesota uses a flat 1% simple interest rate.
Others peg the required rate to a benchmark: the passbook savings rate at local banks, the one-year U.S. Treasury yield, or a rate published by a state banking regulator. Maryland uses the greater of the one-year Treasury yield or 1.5%. New Jersey requires landlords to pay the actual interest the deposit earns in the bank.
The yearly amount is usually small. A 5% rate on a $1,500 deposit produces $75 a year. Over a multi-year tenancy those amounts add up, and if the landlord ignores the requirement, the penalty can be far larger than the interest itself.
Where Your Deposit Has to Sit
In states that require interest, the deposit almost always has to go in a dedicated, interest-bearing account at an FDIC-insured bank or credit union, separate from the landlord’s personal or business funds. The anti-commingling rule protects your money if the landlord faces financial trouble, lawsuits, or bankruptcy.
Some states go further and require the landlord to record the specific name and address of the financial institution and provide that information to you. The penalty for commingling is often severe: in some jurisdictions, a landlord who mixes deposits into an operating account forfeits the right to withhold any portion for damages when you move out, regardless of the property’s actual condition.
When and How You Get Paid
The two most common approaches are an annual payment and a lump sum at move-out when the deposit itself is returned.
States that require annual payment typically give the landlord a window around the lease anniversary date and let them choose between writing a separate check and crediting the interest against the next month’s rent. Some states require written notice of which method was chosen. For tenancies that don’t cover a full year, interest is generally prorated by the months the deposit was held.
If your landlord credits the interest against rent, keep an eye on the accounting. You want documentation showing exactly how much accrued and how it was applied, because a vague credit can create confusion over whether you’ve underpaid. If the landlord writes a check instead, most states set a deadline tied to the same timeline that governs returning the deposit after move-out.
What the Landlord Can Keep
A handful of states let the landlord retain a small slice of the earned interest as compensation for maintaining the account. Some jurisdictions cap this at 1% of the deposit amount; others let the landlord keep up to 25% of the interest earned. Even where the deduction is allowed, the remaining interest still has to be paid on schedule.
Notices You Should Be Receiving
Most states that mandate interest also require specific written disclosures. At the start of the tenancy, the landlord typically has to notify you in writing of the bank where your deposit is held, including the institution’s name and address. Some states set a deadline, often within 30 days of receiving the deposit.
Several states also require an annual statement showing how much interest accrued during the preceding year. Skipping these notices has consequences. In some jurisdictions, a landlord who misses the annual notice gives you the right to apply the full deposit plus interest toward rent. When a property changes hands, the new owner generally has to send a fresh notice within a short window telling you where the deposit was transferred.
Section 8 and HUD Housing
If you live in Section 8 or other HUD-assisted housing, federal rules apply on top of whatever state law says. HUD requires owners of subsidized properties to place deposits in a segregated, interest-bearing account, with the balance always equaling the total collected from current tenants plus accrued interest. When you move out, the owner has to refund the full deposit plus all accrued interest unless you owe unpaid rent or there are legitimate damage charges. If the landlord fails to provide an itemized list of deductions, you’re entitled to the full deposit and all interest back. The owner also has to comply with any applicable state and local interest laws on top of the federal baseline.
Taxes
Interest paid to you on your deposit is taxable income. If it totals $10 or more during the year, the landlord has to file a Form 1099-INT reporting the amount to you and the IRS. You report it on your return even if you received it as a rent credit rather than cash. The dollar amounts are usually small, but ignoring a 1099-INT can trigger an IRS notice.
What Happens If a Landlord Doesn’t Pay
This is where the rules bite. Penalties for failing to pay required interest can be heavy relative to the small amounts actually at stake.
- Forfeiture of the deposit. Some states strip the landlord of the right to withhold any portion for damages if they failed to comply with interest and escrow requirements.
- Statutory damages. Several states let the tenant recover double or triple the interest owed, and in some cases double or triple the entire deposit.
- Attorney’s fees. Many states require the landlord to pay the tenant’s legal costs on a successful claim, which makes even small-dollar disputes worth pursuing.
- Tenant self-help. In a few jurisdictions, a tenant who gives written notice and waits a specified period without receiving the interest can apply the full deposit toward rent.
A landlord who skips $30 in annual interest can end up owing thousands in statutory damages and legal fees. For most tenants, a polite written request citing the specific state or local statute is enough to prompt payment. If it isn’t, small claims court is built for this kind of dispute, and the penalty provisions make the filing fee worth it.