Security Deposit Interest Requirements by State (2026) — Complete Guide

When you hand over a security deposit to your landlord, that money doesn't magically become theirs. It still belongs to you, and the landlord is merely holding it in trust to cover potential damages or unpaid rent. But what happens to the money while it sits in the bank for a year, two years, or a decade? Does it earn interest? And more importantly, who gets to keep that interest?

The answer depends entirely on where you live. While most renters assume that all deposits accrue interest for the tenant's benefit, the reality is that only about a third of U.S. states mandate interest payments. In the rest of the country, landlords can hold your deposit in non-interest-bearing accounts, or simply pocket any interest the funds might generate.

In 2026, understanding the security deposit interest by state is more important than ever, given shifting bank rates and rising rental costs. Read on to find out if you're leaving money on the table, and learn how to navigate the complex web of state-by-state interest laws. Don't forget to check out our comprehensive security deposit guide for more broad advice.

1. Which States Require Interest on Security Deposits?

Currently, around 15 states, plus the District of Columbia, have laws requiring landlords to pay interest on residential security deposits. These laws were generally enacted to prevent landlords from unjustly enriching themselves using their tenants' capital.

The states that typically mandate interest include Connecticut, Illinois, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Dakota, Ohio, and Pennsylvania, among a few others. However, the rules are not uniform even within these states.

For example, some states only require interest payments if the landlord owns a certain number of units. In Illinois, the law only applies to landlords operating buildings with 25 or more units. In New York, the rule applies to landlords with 6 or more units, or those who own rent-regulated apartments. Furthermore, some states only require interest to be paid after the tenant has lived in the unit for a minimum period, such as one year.

You can read more about how this connects to overall deposit data in our 2026 security deposit statistics report.

2. Complete 50-State Interest Requirements Table

Below is a comprehensive overview of security deposit interest laws across all 50 states and Washington D.C. for 2026. This table indicates whether interest is required, what the rates are, and key account requirements.

*Note: Even if a state does not require interest at the state level, several major municipalities (like San Francisco, Los Angeles, and Chicago) have local ordinances mandating interest payments. Always check your local city and county laws.

3. How Security Deposit Interest Works

If you live in a state or municipality that requires your landlord to pay interest, it's essential to understand the mechanics of how that interest accrues and how you ultimately receive it.

Calculation Methods

State governments use different methods to determine the required interest rate. Some set a fixed statutory rate. For example, some older laws mandated a flat 5% annual return, which was highly favorable to tenants during periods of low interest rates.

Most states, however, now tie the interest rate to a fluctuating financial index to reflect real-world banking conditions. This might be the Federal Reserve discount rate, the yield on U.S. Treasury securities, or a rate explicitly published annually by the state's banking commissioner.

Administrative Fees

Managing interest-bearing escrow accounts involves some administrative work and potentially bank fees. Because of this, several states allow landlords to deduct a small administrative fee from the generated interest before paying it out to the tenant. A common standard is allowing the landlord to retain 1% of the total deposit amount annually from the accrued interest. If the account only earns 1% or less, the tenant might not receive any payout.

When Is It Paid?

Payout timelines vary by jurisdiction. In some areas, landlords are required to pay out the accrued interest annually, usually on the anniversary of the lease signing. This can be done via a direct check to the tenant or by applying a credit to the next month's rent. In other jurisdictions, landlords are allowed to hold the interest for the duration of the tenancy and pay it out as a lump sum along with the return of the original deposit when the tenant moves out.

4. States with the Strictest Interest Rules

A few states stand out for having particularly robust frameworks regarding security deposit interest. These states heavily regulate where the money is kept and aggressively penalize landlords who attempt to skirt the rules.

Massachusetts

Massachusetts is widely considered to have the most tenant-friendly (and landlord-punishing) security deposit laws in the nation. Landlords must hold deposits in a separate, interest-bearing account at a bank located within the Commonwealth of Massachusetts. They must give the tenant a receipt showing the bank name, address, and account number. Landlords must pay 5% interest or the actual bank rate (whichever is less) annually. Failure to comply with these strict requirements can result in the landlord forfeiting the right to keep the deposit entirely and facing treble (triple) damages in court.

New Jersey

New Jersey requires landlords to place deposits in interest-bearing accounts or money market funds. Within 30 days of receiving the deposit, the landlord must notify the tenant in writing of the bank's name, address, account type, and current interest rate. Annually, the landlord must pay the tenant the accrued interest, either in cash or as a rent credit.

New York

In New York, if a landlord rents out property in a building with six or more units, they must hold deposits in a New York bank account that earns interest at the prevailing rate. The landlord is permitted to keep a 1% administrative fee, and the remainder belongs to the tenant. This rule also applies broadly to all rent-stabilized and rent-controlled apartments, regardless of building size.

Maryland

Maryland requires landlords holding deposits over $50 to pay interest. For a long time, the rate was a fixed 3%, and then 1.5%. More recently, the state legislature tied the rate to the U.S. Treasury yield curve. Interest accrues at six-month intervals, and the landlord must pay it out when the lease ends and the deposit is returned.

Connecticut

Connecticut ties its interest rate to an index published annually by the state Banking Commissioner. Landlords must pay this interest to tenants every year on the anniversary date of the tenancy. If a landlord fails to pay, they can face a fine of up to $100 per violation.

5. What Happens If Your Landlord Doesn't Pay Interest?

If you live in a state where interest is legally required and your landlord refuses to pay it, you have legal remedies. The exact penalties vary, but they can be severe.

In many jurisdictions, a landlord who fails to place the deposit in an interest-bearing account or fails to notify the tenant of the account details forfeits the right to hold the deposit at all. The tenant can demand immediate return of the full principal amount, even while the lease is still ongoing.

If the landlord simply fails to include the interest when returning your deposit after move-out, you can pursue the money through a demand letter and, if necessary, small claims court. Depending on the state, a judge may award you not only the missing interest but also penalty damages (double or triple the withheld amount) and attorney's fees.

6. How to Claim Interest Owed on Your Deposit

If you believe you are owed interest on your security deposit, follow these steps to secure your funds:

1. Verify Your State and Local Laws: Start by confirming that your specific state or city requires interest payments. Use our state law database to check the exact statutes governing your area.
2. Check Your Lease: Some states allow tenants to waive their right to interest in the lease agreement, or allow the landlord and tenant to agree to different terms. Review your lease carefully.
3. Calculate the Estimated Amount: Look up the statutory interest rate for your state during the years of your tenancy to get a ballpark figure of what you are owed.
4. Send a Formal Request: If your tenancy has ended and you didn't receive your interest, send a written request to your landlord. Use our automated demand letter tool to generate a professional document citing the correct local laws.
5. Consider Small Claims Court: If the landlord ignores your letter or refuses to pay, filing a case in small claims court may be your best option. Read our guide on how to get your security deposit back for a detailed walkthrough of the litigation process.