Security Deposit Interest Calculator
Calculate security deposit interest requirements by state. Know your legal obligations, interest rates, payment timing, and avoid costly penalties.
14 States Require Interest Payment
Connecticut, Illinois, Iowa, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Pennsylvania, and Virginia require landlords to pay interest on security deposits. Failure to comply can result in 2-3x deposit penalties plus fines.
Deposit Details
✅ This state requires security deposit interest
Maximum allowed: No limit (typically 1.5-2 months)
Your Results
You must pay interest on security deposits
Bank passbook rate
Must hold deposit in separate interest-bearing account
Penalties for non-compliance far exceed the interest owed. Always follow your state's requirements.
Interest Calculation Timeline
Example Calculation
Scenario: $2,000 deposit held for 12 months at 3% annual interest
Monthly accrual: $2,000 × 3% ÷ 12 = $5.00 per month
Total interest (12 months): $5.00 × 12 = $60.00
Amount to return: $2,000 (deposit) + $60 (interest) = $2,060
Compliance Requirements Checklist
✓ Account Requirements
- • Open separate interest-bearing account (if required)
- • Use federally insured bank or savings institution
- • Maintain detailed records of deposits and interest
- • Keep bank statements for audit trail
- • Do not commingle with personal/operating funds
✓ Notification Requirements
- • Provide written notice of bank name and address
- • Disclose interest rate in writing
- • Send annual statements (if required by state)
- • Include interest notification in lease
- • Notify tenant of any account changes
Penalties for Non-Compliance
Common Violations & Penalties
Violations
- ❌ Failure to pay interest when required
- ❌ No written notice to tenant
- ❌ Paying wrong interest rate
- ❌ Late payment of interest
- ❌ No separate account when required
- ❌ Missing documentation
- ❌ Commingling funds
Typical Penalties
- 💰 2-3x deposit amount in damages
- 💰 $500-$5,000 statutory fines per violation
- 💰 Tenant recovers attorney fees
- 💰 Loss of right to keep any deposit
- 💰 Court costs and interest on judgment
- 💰 Bad faith penalties for intentional violations
- 💰 Potential civil lawsuit damages
The cost of non-compliance far exceeds the interest owed. Always follow your state's requirements.
State-Specific Requirements
📍 High-Rate States (5%)
- • Iowa: 5% annually
- • Massachusetts: 5% or actual
- • North Dakota: 5% or market rate
- • Ohio: 5% or actual interest
📍 Moderate-Rate States (1-3%)
- • Connecticut: 1.5% minimum
- • Maryland: 3-4%
- • Minnesota: 1%
- • Pennsylvania: 3%
- • Virginia: 1%
📍 Market-Rate States
- • Illinois: Passbook rate
- • New Hampshire: Passbook rate
- • New Jersey: Market rate
- • New York: Prevailing rate
- • New Mexico: Passbook rate
⚠️ Important: Some cities and counties have additional requirements beyond state law. Always check local ordinances (e.g., San Francisco, Chicago, New York City may have stricter rules).
Best Practices for Compliance
✅ Do This
- • Set up automatic interest calculations and payments
- • Include deposit interest clause in lease agreement
- • Provide written notification within required timeframe
- • Keep detailed records of all deposits and payments
- • Use separate account if required by state
- • Pay interest on time (annual or at move-out)
- • Verify current interest rates annually
- • Consult local attorney for compliance
❌ Don't Do This
- • Assume your state doesn't require interest
- • Skip written notification to tenants
- • Commingle deposits with operating funds
- • Pay interest late or "whenever convenient"
- • Use arbitrary interest rate without checking law
- • Ignore local city/county requirements
- • Fail to document deposit and interest payments
- • Think penalties won't apply to you
Related Resources
Tenant Screening
Legal Guides
Financial Tools
Why Security Deposit Interest Is Easy to Get Wrong
A security deposit is the tenant's money held in trust, and in fourteen states the landlord must pay interest on it while it is held. The rules are a patchwork: the rate may be a fixed statutory figure (5% in Iowa, 1% in Virginia), a floating bank passbook rate (Illinois, New Hampshire), or the actual interest earned in a dedicated account. Payment timing varies too, from annual credits against rent to a single payment at move-out, and several states additionally require the deposit to sit in a separate, federally insured account that is never commingled with operating funds. This calculator combines the state rules with the simple-interest formula so you can see exactly what a given deposit has accrued.
The stakes are asymmetric. The interest itself is usually tens of dollars, but non-compliance can expose a landlord to double or triple the deposit in damages plus the tenant's attorney fees. Massachusetts is the classic example: mishandling a deposit there can forfeit the entire deposit and trigger treble damages, over a sum that might have been a $60 annual interest payment.
A Worked Example
A landlord in Maryland collects a $2,400 deposit, the two-month maximum on a $1,200 rental, and the tenant stays three years. Maryland requires simple interest, so at 3% the math is $2,400 × 3% × 3 years = $216 owed on top of whatever portion of the deposit is returned. If the same deposit were held in Iowa at its 5% statutory rate, the three-year figure would be $360; in Virginia at 1% it would be $72. Same deposit, same tenancy, a fivefold difference in the obligation, which is why the state selector drives everything in this tool. In states with no requirement, such as Texas or Georgia, the calculator lets you model a voluntary rate, which some landlords offer as a competitive amenity.
Deposit Caps Vary as Much as Interest Rules
Interest is only half the compliance picture. States also cap how much deposit you may collect, and the spread is wide: one month's rent in New York and Massachusetts, one and a half months in New Jersey, two months in Maryland and Virginia, and no statutory cap at all in Texas, Ohio, or Florida. Cities can be stricter than their states, so a Chicago or New York City landlord must check the municipal ordinance as well. This page summarizes common rules for planning purposes and is not legal advice; statutes change, so confirm current requirements with your state landlord-tenant act or a local attorney before relying on any figure here.
Frequently Asked Questions
Which states require landlords to pay interest on security deposits?
Fourteen states currently require it in at least some situations: Connecticut, Illinois, Iowa, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Pennsylvania, and Virginia. Several of these apply thresholds, such as minimum deposit amounts, building sizes, or holding periods, and cities like Chicago add their own ordinances on top of state law.
How is security deposit interest calculated?
Almost every state uses simple interest: deposit amount multiplied by the annual rate multiplied by the time held in years. A $2,400 deposit held for three years at 3 percent earns $216. Some states peg the rate to a bank passbook rate that changes yearly, while others set a fixed statutory rate, so verify the current rate for each year the deposit was held.
What happens if a landlord fails to pay required deposit interest?
Penalties vary by state but commonly include damages of two to three times the deposit, forfeiture of the right to keep any of the deposit, statutory fines, and payment of the tenant’s attorney fees. Because the interest itself is usually a small amount, the penalty exposure is dramatically larger than the cost of simply complying.
Is there a limit on how much security deposit I can collect?
It depends entirely on the state. New York caps deposits at one month’s rent, Massachusetts at one month, Pennsylvania at two months in the first year of tenancy, and California at two to three months depending on furnishing, while states like Texas and Ohio set no statutory limit. Always check the current statute for your state and any local ordinance before setting deposit terms.