Whether a tenant earns interest on a security deposit is determined by state law. A security deposit protects a landlord against your breaking the lease early and leaving him without rent or from excessive damages to the property. Because you must pay this money to the landlord and cannot use it while you live on the property, many states require the landlord to pay interest on the funds. This requirement protects you, the money’s owner, from effectively not earning any income on your funds.
States that Require Landlords to Pay Interest on Security Deposits
Landlords are required to pay interest on security deposits in the states of:
- New Jersey
- New Mexico
- New York
- North Dakota
- Washington State
The rules for when, how and how much interest must be collected and paid differ in each state.
State Law Applicability and Purview
These interest payment laws do not apply universally to all landlords. Most times, they apply to landlords that manage at least 25 properties. This means that if you are renting from an individual that does not manage other properties, he may not have to pay you interest on your security deposit, despite the laws. State laws also dictate the amount of interest that must be paid, when it must be paid, and any notice requirements of the law the landlord must provide tenants. Violations of these laws are usually punished through fines.
Despite laws requiring interest payments on security deposits, some states permit landlords to charge non-refundable and non-interest-earning fees for pets or cleaning. These states include Nevada, Oregon, Florida and Georgia.