Security Deposit Laws by State: Caps and Interest

The deposit check said $2,400, and I put it straight into the checking account the rent lands in. Where my houses are, that is fine. In Massachusetts that single act would have been the violation — before I ever touched a dollar of it, before any argument about a carpet.

That is the part almost nobody tells you when you take your first deposit. The fight you eventually have is about deductions. The mistake you actually make happens at the beginning, on the day the money arrives, and it is usually procedural: too much collected, wrong account, no receipt.

I have two rented houses and no licence of any kind. What follows is the mechanism and where your own state writes it down. Everything below was checked on 17 August 2026, and deposit statutes get amended — California's cap changed as recently as July 2024 — so treat the links as the authority and this page as the map.

The deposit is not your money, even where you can spend it

Every state agrees on the concept: you are holding a tenant's money against a future, itemizable loss. States disagree wildly on how much they trust you to hold it.

At one end, New York says the money "shall continue to be the money of the person making such deposit" and "shall not be mingled with the personal moneys" of the landlord (GOL § 7-103). At the other, California requires no separate account at all and simply gives the tenant a hard 21-day itemization deadline and a damages claim if you get it wrong.

Both approaches end in the same place if you keep the money separate voluntarily. Only one of them punishes you if you don't.

The cap: what the number actually attaches to

Two traps live in the cap, and neither is the number itself.

Trap one is "however denominated." California's Civil Code § 1950.5 caps "security, however denominated." Pet deposit, cleaning deposit, key deposit, redecorating fee — if you're holding it against a future loss, it counts toward the same ceiling. Landlords blow the cap by stacking three reasonable-sounding items that each look small.

Trap two is which rent. A cap of "one month's rent" moves when the rent moves. If you renew at a higher figure and top up the deposit to match, you have just collected new deposit money, and the current rule applies to it — not the rule that existed when the tenant moved in.

Sources: Cal. Civ. Code § 1950.5 · Mass. G.L. c. 186 § 15B · Fla. Stat. § 83.49 · N.J. DCA security deposit bulletin and N.J.S.A. 46:8-19 · N.Y. GOL §§ 7-103 and 7-108 · 68 P.S. § 250.511b via a secondary reproduction · N.Y. Attorney General, Tenants' Rights Guide, which sets out the six-unit rule and the 1% administrative fee in plain language.

Two rows come with a sourcing warning. Pennsylvania's legislature site and malegislature.gov both refused to load from where I was working on 17 and 18 August 2026, so the Pennsylvania and Massachusetts rows carry section numbers I am confident about and wording I could not re-read that day. Open those two yourself before you act on them.

Notice what the California row does for the reader of this site specifically. The two-month exception is written for exactly the person with one or two small properties. It is also narrow: two properties, four units, natural persons only, and it disappears if your tenant is a service member.

Where the money has to sit

Florida is the cleanest illustration because the statute makes you pick. Section 83.49(1) gives three routes: a separate non-interest-bearing account in a Florida institution, a separate interest-bearing account paying the tenant at least 75% of the annualized average rate or 5% a year, or a surety bond filed with the clerk of the circuit court. The commingling ban is explicit. There is no fourth option called "my regular account, but I'm careful."

Massachusetts goes further and puts the account outside your bankruptcy estate — the deposit is not reachable by your creditors, which tells you exactly how the legislature views the money.

Then there are the unit-count thresholds, and this is where 1-to-4-unit owners keep guessing wrong in both directions:

• New York: the interest-bearing account requirement applies to buildings with six or more family dwelling units. Your duplex is exempt from that — but not from the trust-fund and no-commingling rule, which has no unit threshold.
• Illinois: the Security Deposit Interest Act (765 ILCS 715) reaches lessors of residential property with 25 or more units, and only for deposits held six months or longer — the state's banking regulator states both limits in its annual rate notice. Almost no one reading this is covered by it.
• Chicago: the RLTO covers you anyway unless you live in the building and it has six or fewer units. Miss that distinction and a compliant Illinois landlord becomes a non-compliant Chicago one on the same block.
• New Jersey: owner-occupied premises with two or fewer rental units sit outside the Act — until the tenant sends a 30-day written notice demanding compliance, at which point the whole scheme switches on.

A separate account is cheap. A basic business savings account at the same bank costs nothing at most institutions and takes about twenty minutes to open. I did it after the fact for both houses and the only thing I regret is the year I spent reconstructing which dollars were whose.

What the statutes constrain is the institution and the segregation, not the label on the account. Florida's three routes all speak of holding "the total amount of such money" in one separate account at a Florida financial institution, which reads as a single pooled account rather than one per tenant — the line being drawn is between the tenants' money and yours, not between one tenant and the next. New Jersey is fussier about the institution than about the pooling: under ten units the money goes into "a State or federally chartered banking institution, in this State insured by the federal government, in an account that bears interest on time or savings deposits," and at ten units and above an insured money market fund run by a New Jersey investment company becomes an option (DCA security deposit bulletin, revised July 2025). If that account carries a monthly fee, note who pays it: since P.L. 2003, c. 188 a New Jersey landlord may not take administrative expenses out of deposit money at all, where New York and Pennsylvania let you keep 1% a year for the trouble of holding it.

Interest is small, and the penalty for skipping it is not

The amounts are almost comic. Illinois publishes the statutory rate each year, and the notice linked above is the 2026 one: 0.005%, an APY of 0.01%, taken from what the largest commercial bank headquartered in Illinois paid on minimum-deposit savings accounts as of 31 December 2025. On a $1,500 deposit that is about seven cents a year.

Massachusetts is the opposite: 5% a year, or whatever the account actually earned, paid annually — and failing to pay interest owed within 30 days after the tenancy ends exposes you to three times that interest plus court costs and attorney's fees. The interest is trivial. The fee award is not.

The scheduling detail people miss: interest is generally payable annually during the tenancy, not lumped in at move-out. Pennsylvania is the exception that proves it, since its interest obligation only begins after the second anniversary of the deposit. Put the anniversary date in your calendar the day you sign, not the day the tenant leaves.

The notice clock starts the day the check clears

Only California leaves this out. The other five all make you tell the tenant in writing where the money went, and three of them hang a clock on it short enough to miss.

Florida has the sharpest edge, though not quite where landlords expect it, because § 83.49 carries two different notices. The first is the disclosure at the start: in the lease or within 30 days of receiving the money, naming the depository and saying whether the funds are held separately or commingled.

The second comes at the end and is the one with teeth. If you intend to keep any part of the deposit, you have 30 days from the tenant vacating to send a notice of intention to impose a claim, by certified mail to their last known address, in the wording the statute prints out for you. Miss that one and § 83.49(3)(a) says you forfeit the right to impose a claim on the deposit and may not set it off — you can still sue for damages after returning the money, which trades a deduction for a lawsuit. Send it on time and the tenant then has 15 days to object.

New Jersey's notice names the institution and its address, the type of account, the current rate of interest and the amount deposited — and it has to be given again within 30 days of moving the money to another account or bank, and at each annual interest payment. Massachusetts wants a receipt within 30 days naming the bank, its address and the account number.

None of these take more than a page. All of them are easier to write the week you take the deposit than to reconstruct at move-out under a 14-day clock.

The channel is not your choice either, and Florida moved on that recently. The 2025 text of § 83.49(3)(a) lets the notice of intention to impose a claim go "by certified mail to the tenant's last known mailing address or by e-mail in accordance with s. 83.505" — and § 83.505, added by ch. 2025-16, only switches e-mail on where both parties have signed an addendum specifically agreeing to electronic delivery, conspicuously flagged as voluntary, with a valid address named for the purpose. Such a notice is deemed delivered when it is sent unless it bounces, and either side can revoke the arrangement in writing at any time. New Jersey prescribes the channel at the other end of the tenancy instead — the deposit and the itemized list go back by personal delivery, certified or registered mail — while the account notice at the start is allowed to sit in the lease itself.

What getting it wrong actually costs

Deposit statutes are one of the few places in landlord-tenant law with fee-shifting and multipliers, which is why small claims filings over $400 turn into four-figure judgments.

Texas repays reading even if you are nowhere near it, because it shows how the pieces lock together. No cap, no separate-account rule — relaxed, until you reach the enforcement section. Retain a deposit in bad faith and § 92.109 costs you $100, three times the portion wrongfully withheld, and the tenant's attorney's fees. Fail in bad faith to give the written description and itemized list and you forfeit the right to withhold anything at all. Then subsection (d) closes it: a landlord who has neither returned the deposit nor itemized within 30 days of surrender is presumed to have acted in bad faith, and under subsection (c) the burden of showing the retention was reasonable is yours (Tex. Prop. Code ch. 92, subch. C).

The multipliers elsewhere:

• Massachusetts: § 15B(6) lists the failures — no proper account, no itemized list within 30 days — that forfeit your right to retain any part of the deposit, and § 15B(7) turns certain violations into treble damages with costs and attorney's fees.
• New York: a deliberate breach of the § 7-108 return-and-itemize rule exposes you to up to twice the deposit.
• California: bad-faith retention can mean statutory damages of up to twice the deposit on top of actual damages.
• Chicago: twice the deposit plus interest, plus fees, for deposit-handling violations under RLTO 5-12-080.

Read your own state's penalty section before you decide the paperwork is optional. It is the section that tells you how seriously the legislature meant the rest.

Finding your own state's rule in about twenty minutes

Four questions, in this order. Write the answers on one page and keep it with the lease.

1. Is there a cap, and what counts toward it? Search the legislature's own site, not a blog: leginfo.legislature.ca.gov, malegislature.gov, nysenate.gov, ilga.gov, statutes.capitol.texas.gov, flsenate.gov. The search string that works is your state's name plus statutes "security deposit" — you want the code section, not a summary.
2. Where must it be held? Look for the words separate, escrow, commingle, trust. If none of them appear, there is probably no account rule; if any of them appears, read the sentence twice for a unit-count threshold.
3. Is interest owed, and starting when? Check for a unit threshold and a time threshold. Some states publish the rate annually — bookmark that page rather than the rate.
4. What must I tell the tenant, and by when? This is the one most often missing from summaries, and it is the one with the shortest deadline.

Then repeat all four for your city. Municipal ordinances usually add duties rather than replace state ones, and Chicago is the standing proof that a state-compliant landlord can be city-non-compliant. Your county law library or your state's court self-help site will have a plain-language version; use it to understand the statute, not to replace reading it.

One more habit separates reading the statute from reading last year's statute. Florida publishes a separate copy of every section for each year, so swapping 2024 for 2025 in flsenate.gov/laws/statutes/2024/83.49 produces a subsection (3)(a) that no longer says quite the same thing, and the History line at the foot of the page ends with the entry that explains it: s. 2, ch. 2025-16. California's leginfo prints the equivalent as a credit line under each code section, naming the chapter and bill that last amended it. Find that line before you rely on the text above it — agency summaries carry their own date instead, and a date like the New Jersey bulletin's "May 2010 (Revised July 2025)" tells you when someone last checked, not when the law last moved.

What I'd do differently

I would have opened the separate account before the first tenant moved in, not three years later. Not because my state required it — it didn't, and still doesn't — but because the day a tenant asks for a deposit statement, "here is the account, here is every entry" is a two-minute answer and "let me go through my statements" is a two-week one.

And I would have written the deposit page of the lease last instead of first. The cap, the account, the interest and the notice are four different rules with four different triggers, and you can only fill in the lease correctly once you know all four.

The other half of this statute is the one you meet at the end, when you decide what may actually come out of the money you have been holding. That line — and the arithmetic that sets the amount once something is genuinely chargeable — is in wear and tear or damage, room by room. To sanity-check a settlement figure and the deadline hanging off it, the security deposit settlement calculator runs in the browser.

Deposits are the one part of self-managing where the arithmetic is easy and the procedure is where you lose. Get the procedure boring and the arithmetic never comes up.

This is one landlord's reading of public statutes, not legal advice. Before you collect a deposit, confirm the current text with your state legislature's official site — the rules above change more often than you would expect.