Are landlords required to pay interest on security deposits

Last updated 2026-07-26

are landlords required to pay interest on security deposits

No, not everywhere, and that's the honest answer. There's no federal statute touching security deposit interest at all. It's purely a state (and sometimes city) issue, which means the answer changes completely depending on where your rental sits. About 15 states plus Washington DC currently require landlords to pay some interest on deposits, at least under certain conditions (deposit size, lease length, or number of units). States like Connecticut, Illinois, Maryland, Massachusetts, New Jersey, New York (mainly NYC-area buildings), and Pennsylvania are on that list, though the rules and rates differ a lot ^[1]. Most states, including Texas, Florida, Ohio, Georgia, and Arizona, have no statewide interest requirement at all. If you're a landlord in one of those states, you generally don't owe interest on the deposit unless your specific city ordinance says otherwise, and a handful of cities do layer their own rules on top of state law. Here's the part that trips people up: even in states that require interest, the rate, the trigger (some only kick in after 12 months of tenancy), and the payment method (annual check, credit toward rent, or paid at move-out) all vary by statute. You cannot assume a flat national rule exists, because it doesn't.

which states require landlords to pay interest on security deposits

Connecticut	Yes, rate set annually by the banking commissioner	Deposit held 12+ months
Illinois (Chicago RLTO)	Yes, rate set annually	Buildings with 25+ units in Chicago [2]
Massachusetts	Yes, 5% or the rate the bank pays, whichever applies	Deposit held 12+ months [3]
New Jersey	Yes, bank passbook rate or rate landlord actually earns	Any deposit, paid annually or credited [4]
Maryland	Yes, tiered rate, at least 1.5% for deposits after 2015	Deposit held 6+ months [5]
Pennsylvania	Yes, but only after year 2 of tenancy	Deposit held 2+ years [6]	Some of these numbers move. Massachusetts law, for instance, sets the rate at 5% per year or the rate the bank actually paid on the account, whichever is lower, and interest doesn't accrue for the first year of a fixed lease term in certain circumstances (the statute has notice and escrow requirements landlords often miss) [3]. Connecticut's rate is reset annually by the state banking commissioner and has actually been near zero in some low-rate years, so 'requires interest' doesn't always mean 'meaningful payout'. If your city has its own rental licensing program, like Chicago's, the city ordinance can add requirements state law doesn't have. Chicago's Residential Landlord and Tenant Ordinance requires interest payments on deposits for many rental units in the city, separate from any statewide rule [2]. This is exactly the kind of layered requirement that catches landlords off guard when they get a notice from the city, so confirm both your state statute and your city's rental office rules, more than one or the other.

At least 15 states plus DC have some interest requirement, though the specifics range widely. Here's a rough comparison of well-documented examples, though you should always confirm the current rate with your state's official statute since these get updated periodically. | State | Interest required | Typical trigger |

what happens if a landlord doesn't pay required interest

If your jurisdiction requires deposit interest and you skip it, tenants generally have a legal claim, and depending on the state that claim can carry penalties well beyond the interest itself. In Massachusetts, a landlord who fails to pay required interest, or who fails to give the tenant a receipt and account information for the deposit, can be liable for up to three times the deposit amount plus attorney's fees, under G.L. c. 186, § 15B ^[3]. That's not a rare technicality either. Massachusetts courts have applied that treble-damages remedy strictly, since the statute is written to punish sloppy deposit handling, more than missed interest checks. New Jersey's deposit law similarly allows tenants to sue for the deposit plus penalties if a landlord doesn't follow the escrow and interest rules under N.J.S.A. 46:8-19 ^[4]. The safest move if you're in a state or city with an interest requirement: pay it on time, document it in writing, and keep records showing the calculation. Don't wait for a tenant to ask. If you've been renting units for years without knowing your state required this, go back and check your statute now, because back interest (and possible penalties) can pile up fast in states like Massachusetts and New Jersey.

how do i know if my city or state requires deposit interest

Start with your state's landlord-tenant statute, since that's where the baseline requirement (or lack of one) lives. A quick search for '[your state] security deposit interest statute' usually gets you to the actual code section. Then check whether your city runs its own rental licensing or landlord-tenant ordinance, because cities like Chicago add requirements state law doesn't mention ^[2]. A few practical checkpoints: - Look up your state's official landlord-tenant statute or attorney general's tenant rights page.

• Search your city's rental licensing office site for 'security deposit' rules specific to your municipality.
• Check whether the requirement depends on building size, deposit amount, or lease length, since many states only require interest above a certain threshold.
• Confirm whether the interest rate changes annually (Connecticut and Massachusetts both work this way), because a rate you used two years ago may be outdated. If you manage units in a mandatory rental-licensing city and you're also dealing with an inspection deadline or renewal notice, it's worth doing this check at the same time you're pulling together your other compliance paperwork. That's the kind of one-time research that saves you from a surprise violation letter later. If you want a structured way to organize city-specific rental compliance items (license renewal dates, inspection prep, deposit rules) in one place, the City Rental License & Inspection Prep Packet is built for exactly that kind of city-by-city compliance tracking, though the packet itself doesn't replace checking your specific state statute for deposit interest.

how to become a landlord

Becoming a landlord legally usually means clearing three separate hurdles: property ownership or lease authority, local business or rental licensing, and basic landlord-tenant law compliance. None of these is optional in most mandatory-licensing cities. First, you need the property itself, whether bought outright, financed, or inherited. Second, most cities with rental licensing programs require you to register the unit before you rent it out, sometimes before you even list it. Registration usually means an application, a fee (commonly somewhere between $25 and $250 per unit depending on the city, though this varies enormously; confirm with your city rental licensing office), and often a scheduled inspection. Third, you need to actually learn the rules that apply: security deposit limits and interest requirements, notice periods for entry and lease termination, habitability standards, and eviction procedures specific to your state. A lot of new landlords skip this step and only learn the rules after getting a violation notice or a tenant complaint, which is a rough way to learn. If you're renting out your first unit, do the registration and licensing research before you sign a lease with a tenant, not after. Retroactive compliance (getting licensed after you already have a tenant in place) is usually possible but often comes with late fees or back-inspection headaches in cities that track rental registration closely.

what is a landlord, and what does landlording actually involve

A landlord is the owner (or authorized manager) of a rental property who leases it to a tenant in exchange for rent, taking on legal responsibilities for habitability, deposit handling, and lease enforcement in return. 'Landlording' is the day-to-day practice of running that rental: collecting rent, handling repairs, managing turnover, and staying compliant with state and local law. It's more operational than people expect going in. A landlord with even one or two units is responsible for keeping the unit habitable under state warranty-of-habitability law, following notice rules before entering the unit, handling the security deposit correctly (this is where interest requirements show up), and following eviction procedures exactly if a tenant needs to be removed. Small landlords, meaning those with 1 to 10 units, often underestimate how much of this is legally mandatory rather than optional best practice. Deposit interest, if your state requires it, isn't a courtesy. Notice periods aren't a suggestion. Getting these basics down early saves a lot of grief later, especially in cities that actively enforce rental licensing and inspection rules. For a broader look at what the landlord role covers day to day, see landlord and landlord landlords.

what rights do tenants have without a lease

Tenants without a written lease, often called month-to-month or tenants-at-will, still have real legal protections under state law, just with different notice rules than a fixed-term lease. The absence of a written lease doesn't mean the absence of tenant rights. Most states treat an unwritten rental arrangement as a month-to-month tenancy once rent is paid and accepted regularly. That tenant still has a right to habitable housing, protection from illegal lockouts or utility shutoffs, and the standard notice period before the landlord can end the tenancy or raise rent (commonly 30 days in many states, though some require more depending on how long the tenant has lived there and local rules). Security deposit rules also still apply without a written lease. If your state or city requires deposit interest, that requirement doesn't disappear just because there's no signed lease document, since the obligation attaches to the deposit itself, not the paperwork. Same goes for entry notice rules and habitability standards. Verbal or implied leases are legally real, they're just harder to enforce the specific terms of if a dispute happens, since there's no written record of what was agreed to. For a deeper look at protections that apply either way, see tenant rights, tenants rights, and renters rights.

who is responsible for a rental property walk-through inspection in california

In California, the landlord is legally responsible for offering an initial move-out walk-through inspection if the tenant requests it, and for later conducting a final inspection tied to the security deposit return. California Civil Code Section 1950.5 requires landlords to notify tenants of their right to an initial inspection before the tenant moves out, so any needed repairs can be identified in advance and the tenant has a chance to fix issues themselves ^[7]. The process works like this: the landlord must give written notice of the tenant's right to request this pre-move-out inspection, generally within a reasonable time before the tenancy ends. If the tenant requests it, the landlord (or their agent) does the walk-through with the tenant present if the tenant wants to attend, and provides an itemized statement of anything that might be deducted from the deposit. This gives the tenant a chance to clean or repair items before the final move-out, rather than getting hit with deductions after the fact. After the tenant actually moves out, the landlord does a final inspection and has 21 days under California law to return the deposit along with an itemized statement of any deductions ^[7]. This 21-day deadline is separate from the earlier optional walk-through and applies regardless of whether the initial inspection happened. Landlords in California should keep in mind this inspection process is distinct from any city-level rental inspection required for licensing purposes, so a city like Los Angeles or San Francisco might layer its own inspection requirements on top of this state deposit-related process.

why do landlords require renters insurance

Landlords require renters insurance mainly to shift liability for the tenant's personal property and personal liability claims away from the landlord's own policy. A landlord's property insurance typically covers the building structure, not the tenant's belongings, and it usually doesn't cover a tenant's liability if, say, the tenant's guest gets hurt inside the unit or the tenant accidentally causes damage covered by their own actions. Requiring renters insurance (usually at a modest coverage minimum, commonly cited around $100,000 in personal liability coverage, though minimums vary by landlord and lease) protects the landlord from being the only deep pocket in a dispute. If a tenant's negligence causes a fire or a burst pipe, a renters policy can cover the tenant's liability portion, reducing what the landlord's own insurer has to pay out and potentially reducing future premium increases on the landlord's policy. It also protects the tenant, which indirectly protects the landlord from disputes. Without renters insurance, a tenant who loses belongings in a fire or flood has no coverage at all, and some tenants mistakenly assume the landlord's policy covers their stuff. It doesn't. Requiring proof of renters insurance as a lease condition is legal in nearly all states, though a few cities or subsidized housing programs restrict how strictly it can be enforced, so it's worth confirming local rules if you manage subsidized units.

how much notice does a landlord have to give before entry or ending a tenancy

Notice requirements split into two different categories: notice to enter the unit, and notice to end or change a tenancy. Both vary significantly by state, and neither has one universal number. For entry notice, many states require 24 hours' advance notice for non-emergency entry (repairs, inspections, showings), though a few states specify 12 hours and others don't set a specific number at all, just requiring 'reasonable notice.' California, for example, generally requires 24 hours' written notice for entry under Civil Code Section 1954, with exceptions for emergencies ^[8]. For ending a month-to-month tenancy or raising rent, the common baseline is 30 days' notice, but that number climbs in some states depending on how long the tenant has lived there. California requires 60 days' notice to terminate a month-to-month tenancy if the tenant has lived there a year or more, and 30 days if less than a year, under Civil Code Section 1946.1 ^[9]. Bottom line: don't assume 30 days covers you everywhere. Check your specific state statute for both entry notice and termination notice, since getting either wrong can invalidate a notice or, in a termination dispute, delay an eviction filing significantly.

what can a landlord look at during an inspection

During a routine or move-out inspection, a landlord can generally look at the physical condition of the unit itself: walls, floors, fixtures, appliances, plumbing, and any damage beyond normal wear and tear. What a landlord generally cannot do is search through a tenant's personal belongings, closets, or private storage without cause, since the inspection right covers the property's condition, not a general search. Most states' entry statutes limit landlord access to specific legitimate purposes: making repairs, showing the unit to prospective tenants or buyers, verifying the tenant is complying with the lease, or conducting a move-out or licensing-related inspection. The inspection generally can't extend into rummaging through drawers or personal items unless there's a specific, disclosed reason (like checking for an unauthorized pet or verifying a maintenance issue reported in that area). For city-mandated rental licensing inspections specifically, the inspector is typically checking code compliance items: smoke detectors, working exits, electrical panel condition, plumbing leaks, pest issues, and general habitability standards defined in the local housing code. These inspections are usually scheduled in advance and the scope is often listed on the city's own inspection checklist, so ask your city rental licensing office for their specific checklist before the appointment rather than guessing what they'll look at.

what a landlord cannot do in ohio

Ohio landlords are restricted by the state's Landlord Tenant Act (Ohio Revised Code Chapter 5321) from a specific set of actions, most notably self-help eviction and improper deposit handling. Ohio law prohibits landlords from removing a tenant's belongings, changing locks, or shutting off utilities to force a tenant out without going through the formal eviction process in court . Ohio landlords also cannot retaliate against a tenant for exercising legal rights, such as filing a habitability complaint with a local code enforcement office or joining a tenant organization, under R.C. 5321.02 . Retaliatory rent increases or lease termination shortly after a tenant complaint can be challenged in court as retaliatory under this statute. On deposits specifically, Ohio law under R.C. 5321.16 requires landlords to return the deposit (or an itemized list of deductions) within 30 days of the tenancy ending, and a landlord who wrongfully withholds the deposit can be liable for the amount wrongfully withheld plus damages, and in some cases attorney's fees . Ohio does not have a statewide security deposit interest requirement in its general landlord-tenant statute, so if you're renting in Ohio, don't assume interest is owed unless a specific city ordinance where the property sits says otherwise. Ohio landlords also generally cannot enter a rental unit without reasonable notice for non-emergency purposes, though the statute doesn't spell out an exact hour requirement the way California's does, so 'reasonable notice' is the operative (and somewhat vaguer) standard under Ohio law.

Frequently asked questions

do all states require landlords to pay interest on security deposits

No. Only about 15 states plus Washington DC have a statewide requirement, and even among those, rates and trigger conditions (deposit size, lease length, building size) vary a lot ^[1][2]. Most states, including Texas, Florida, and Ohio, have no statewide interest requirement at all. Always check your specific state statute rather than assuming a rule that applies elsewhere applies to you.

what is the average interest rate landlords must pay on deposits

There's no single average since rates are set state by state and sometimes change annually. Massachusetts caps it at 5% or the bank's actual rate, whichever is lower ^[5]. Connecticut's rate is reset yearly by the state banking commissioner and has been well under 1% in some recent low-rate years ^[3]. Check your current state rate directly rather than relying on an old number.

can a city require deposit interest even if the state doesn't

Yes, in some cases. Chicago's Residential Landlord and Tenant Ordinance requires interest payments on security deposits for many units in the city, a requirement layered on top of, not replacing, Illinois state law ^[4]. If your city runs its own rental licensing program, check its ordinance specifically, since city rules can add obligations state law doesn't mention.

how to become a landlord if i've never rented out a property before

Start by confirming your property qualifies (zoning, mortgage terms allowing rentals), then check whether your city requires rental registration or licensing before you can legally lease it out. After that, learn your state's core landlord-tenant rules on deposits, notice periods, and habitability before signing a lease, since violations discovered later are harder to fix retroactively.

who is responsible for the move-out walk-through inspection in california

The landlord is responsible for offering the initial pre-move-out inspection if requested and for conducting the final inspection tied to deposit return, under California Civil Code Section 1950.5 ^[9]. The landlord must give written notice of the tenant's right to this inspection and, after move-out, has 21 days to return the deposit with an itemized statement of deductions.

what is landlording as a general term

Landlording is the ongoing practice of owning and managing a rental property: collecting rent, handling repairs, managing tenant turnover, and staying compliant with state and city landlord-tenant law. It covers everything from lease signing to deposit handling to eventual move-out, and for small landlords it's usually a part-time responsibility layered on top of a regular job.

what rights does a tenant have if there's no written lease

A tenant without a written lease is usually still protected as a month-to-month tenant under state law, with rights to habitable housing, standard notice before termination or rent increases (commonly 30 days, sometimes more), and normal security deposit protections. The lack of a written lease doesn't remove these rights, it just makes specific terms harder to prove in a dispute.

why do landlords require renters insurance from tenants

Landlords require it mainly to shift liability for the tenant's belongings and for tenant-caused liability claims (like a guest injury) away from the landlord's own insurance. A landlord's building policy generally doesn't cover a tenant's personal property, so renters insurance protects both the tenant and the landlord's exposure to disputes.

how much notice does a landlord have to give before entering the unit

It depends on the state; there's no federal standard. Many states require 24 hours' advance notice for non-emergency entry. California requires 24 hours' written notice under Civil Code Section 1954, with exceptions for emergencies ^[10]. Always confirm your specific state's entry notice statute since the number and format requirements differ.

what can a landlord actually inspect during a routine inspection

A landlord can generally inspect the physical condition of the unit: fixtures, appliances, plumbing, walls, and safety equipment like smoke detectors. A landlord generally cannot search personal belongings, closets, or private storage without a specific disclosed reason, since the inspection right covers the property's condition, not a general search of the tenant's things.

what is a landlord not allowed to do in ohio

Ohio landlords cannot use self-help eviction tactics like changing locks or shutting off utilities to force a tenant out, under Ohio Revised Code Chapter 5321 ^[12]. They also cannot retaliate against a tenant for filing a legitimate complaint, under R.C. 5321.02 ^[13], and must return security deposits within 30 days of move-out under R.C. 5321.16 ^[14].

does ohio require landlords to pay interest on security deposits

No. Ohio's general landlord-tenant statute, R.C. Chapter 5321, does not include a statewide security deposit interest requirement ^[12][14]. Some other states do require it, so if you own rental property in multiple states, don't assume Ohio's rules (or lack of an interest rule) apply to units you own elsewhere.

Sources

1. Massachusetts General Laws Chapter 186, Section 15B: Massachusetts requires 5% interest or the bank's actual rate on security deposits held 12+ months, with treble damages for violations
2. Maryland Code, Real Property Section 8-203: Maryland requires tiered interest rates on security deposits held 6 months or more
3. Pennsylvania Landlord and Tenant Act, 68 P.S. Section 250.511b: Pennsylvania requires interest on security deposits only after the second year of tenancy
4. California Civil Code Section 1950.5: California landlords must offer a pre-move-out inspection and return deposits within 21 days with itemized deductions
5. California Civil Code Section 1954: California requires 24 hours' written notice for non-emergency landlord entry
6. California Civil Code Section 1946.1: California requires 60 days' notice to terminate a month-to-month tenancy of a year or more, 30 days if less
7. Ohio Revised Code Chapter 5321, Landlords and Tenants: Ohio law prohibits self-help eviction tactics and governs landlord-tenant obligations generally
8. Ohio Revised Code Section 5321.02: Ohio prohibits retaliatory conduct by landlords against tenants exercising legal rights
9. Ohio Revised Code Section 5321.16: Ohio requires return of security deposits within 30 days with itemized deductions and allows damages for wrongful withholding