Unfair as it may seem, only a third of the states require landlords to pay interest on deposits. In other words, many landlords can simply put your deposit in a personal bank account, use it, and pocket the interest, as long as the original sum is available when you move out.
Some states require landlords to give tenants information on the location of this separate trust account at the start of the tenancy, usually as part of the lease or rental agreement. These states typically establish detailed requirements, including:
- The interest rate to be paid. Usually, it’s a little lower than the bank actually pays because the landlord is allowed to keep a small portion for administrative expenses.
- When interest payments must be made. The most common laws require payments to be made annually and/or when you leave.
- Notifying the tenant. Landlords must tell tenants where and how the security deposit is being held and the rate of interest it’s earning.
See your state rules on security deposits for details on interest requirements in your state. Also, check whether any local rules apply. Chicago, Los Angeles, San Francisco, and several other cities (typically those with rent control) require landlords to pay or credit tenants with interest on security deposits even if the state law does not impose this duty. A few cities require that the funds be kept in interest-bearing accounts that are separate from the landlord’s personal or other business accounts.
Even if your landlord has no legal obligation to pay interest on your deposit, it doesn't hurt to ask. Excellent landlords are willing to pay interest on your deposit as an honest business practice, even if there is no law requiring it.