Do landlords have to pay interest on security deposits?
Only in some states. Massachusetts, New York (for buildings with six or more units), Maryland and Minnesota all require interest on tenant deposits, each with its own rate and timing. Many other states have no interest rule, so check your own state statute and any city ordinance before you decide where to hold deposits.
Four states that require interest
| State | Who it covers | Rate | When it is paid |
|---|---|---|---|
| Massachusetts | Deposits held a year or longer | 5% a year, or the lower rate the bank actually paid | At the end of each year; accrued interest within 30 days if the tenancy ends sooner |
| New York | Buildings with six or more units must use an interest-bearing account | The prevailing rate at local banks; landlord may keep 1% a year of the deposit as an administrative fee | Paid yearly, or held and applied to rent or repaid |
| Maryland | Deposits of $50 or more held at least six months | Greater of the one-year Treasury rate on the first business day of the year or 1.5%, simple | With the deposit, within 45 days after the tenancy ends |
| Minnesota | All residential deposits | 1% a year, simple, noncompounded | With the deposit, within three weeks after the tenancy ends |
Sources: Massachusetts c. 186, section 15B; New York General Obligations Law 7-103; Maryland Real Property 8-203; Minnesota section 504B.178. These summarize the statutes as published on the date shown below; read the full text for your situation and check any city rules.
Massachusetts: separate account and yearly statements
Massachusetts adds account rules to the interest rule. The deposit must sit in a separate, interest-bearing account at a bank in Massachusetts, and the tenant gets a receipt within 30 days showing the bank, the amount and the account number. Each year the landlord gives a statement with the bank's name and address, the deposit, the account number and the interest due. Prepaid last month's rent also earns interest at 5% or the lower bank rate, from the first day of the tenancy.
Example a made-up tenant pays a $1,800 deposit, and the Massachusetts bank pays 0.5% a year on the account. After one year the landlord owes the tenant $9.00 in interest ($1,800 times 0.5%), because the bank paid less than 5%.
For deposit limits and return deadlines, see security deposit limits and return deadlines.
New York: the six-unit line and the 1% fee
Under General Obligations Law 7-103, an owner of a building with six or more units must put deposits in an interest-bearing account at a bank in New York, at the prevailing local rate. The owner may keep 1% a year of the deposit for administration, and the rest of the interest belongs to the tenant. The tenant must be told in writing the bank's name and address and the amount deposited.
Example a made-up tenant in a 10 unit New York building pays a $2,000 deposit, and the account earns 2.5% in a year, or $50. The owner keeps 1% of $2,000, which is $20, and the tenant's share is $30, paid yearly or applied to rent.
Maryland and Minnesota: interest paid at move-out
Maryland sets a floor. Interest runs monthly from the day the deposit is paid, at the one-year Treasury rate from the first business day of the year or 1.5%, whichever is greater. There is no compounding, no interest for a partial month, and none at all unless the deposit was held at least six months. The state housing department publishes the yearly rates and a calculator that landlords may rely on.
Example a made-up Maryland landlord holds a $1,500 deposit for exactly two years in years when the 1.5% floor applies. Simple interest is $1,500 times 1.5% times 2, or $45, returned with the deposit within 45 days.
Minnesota uses a flat 1% simple rate. Interest starts the first day of the month after the deposit is paid in full, and amounts under $1 are excluded.
Example a made-up Minnesota tenant finishes paying a $1,200 deposit on January 10. Interest starts February 1. If the landlord returns the deposit two years later in January, interest runs through January 31: 24 months at 1%, so the tenant gets $1,200 plus $24.
How to set up deposits so interest is easy
- Look up your state statute and any city ordinance before the first tenant moves in.
- Open a separate deposit account if your state requires one or interest is due; it also keeps deposits out of operating cash.
- Record each deposit as money you owe back, not income. This guide covers the bookkeeping.
- Note the date each deposit was paid in full; every state above counts interest from a date.
- Calendar the yearly interest payment or statement where the law requires one.
This page is general information, not legal or tax advice. Interest you pay or earn on deposits can have tax effects; ask your tax preparer.
How DoorKeeping handles it
In DoorKeeping, each property has its own books, including the deposits it holds, so you can ask your AI app how much each tenant paid and when. DoorKeeping never holds deposits or rent; the money stays in your own bank. It does not give legal advice, so the interest rule you follow comes from your state statute.
Sources
- Massachusetts General Laws chapter 186, section 15B, read Oct 29, 2026
- New York General Obligations Law 7-103, read Oct 29, 2026
- Maryland Code, Real Property 8-203, read Oct 29, 2026
- Minnesota Statutes 504B.178, read Oct 29, 2026
Questions
- Do all states require interest on security deposits?
- No. Many have no interest rule. Massachusetts, New York for buildings with six or more units, Maryland and Minnesota are examples of states that do. Some cities add their own rules.
- What interest rate does Minnesota require on deposits?
- Minnesota Statutes 504B.178 sets 1% a year, simple and noncompounded, paid with the deposit at the end of the tenancy.
- Can a New York landlord keep part of the deposit interest?
- Yes. General Obligations Law 7-103 lets the landlord keep 1% a year of the deposit as an administrative fee when it is in an interest-bearing account.