Security Deposit Interest Calculator

Understanding Security Deposit Interest Laws

In most US states, a security deposit remains the tenant's property throughout the lease. Because it is the tenant's money, a handful of states require landlords to place these funds in a separate, interest-bearing bank account and pass the accrued interest back to the tenant.

Escrow and Separate Account Rules

States like New Jersey, Maryland, and Massachusetts strictly prohibit landlords from commingling security deposits with their personal or business operating funds. Landlords must deposit the money in a regulated financial institution (often within the state) and, in many cases, provide the tenant with a written receipt indicating the bank's name, address, and the current interest rate.

Annual Payments vs. Move-Out Credits

Depending on local statutes, the way interest is paid out can vary:

• Annual Payouts: In some jurisdictions, landlords must pay out the accrued interest to the tenant annually, either via direct payment or as a credit toward the next month's rent.
• End of Tenancy: In others, the interest simply accumulates and is returned alongside the principal deposit balance when the tenant moves out (minus any lawful deductions).

Administrative Fees

Because managing these separate accounts takes effort, states like New York and Pennsylvania allow landlords to retain a small administrative fee — typically 1% per year — from the accrued interest. If the account earns less than 1%, the landlord keeps whatever it earns, and the tenant receives nothing, but the landlord never dips into the principal to cover the fee.

Penalties for Non-Compliance

Landlords who fail to follow interest and escrow laws can face severe penalties. For instance, in Massachusetts, failing to hold a deposit in a separate interest-bearing account or failing to pay the interest can result in the tenant being awarded triple damages, plus attorney fees. Ignorance of the law is not an acceptable defense in court.