Handling Interest from Tenant Deposits

by Dave Bowers
(Montreal, QC)

While most landlords know how much tenant deposits to ask and when to deduct money from them, they are often clueless when it comes to dealing with the interest from these security deposits.

The law for handling deposit interest can vary wildly from country to country or even from state to state. Once you get your hands on the tenant deposit, find out what you are supposed to do with it. If there is no mention of deposit interest, then you probably won't have to worry about this matter.

In some areas, you are supposed to leave the security deposit in an interest-bearing account. In other areas, the money has to be deposited into a non-interest account to make sure you don't profit from it.

It is also possible that your area requires you to return the deposit plus a fixed interest and doesn't care where you leave the cash.

In real life, most people from my landlord association don't bother opening a separate account and simply chuck the deposit in their own bank account. When it's time to return the money, they will just withdraw it and return it with the interest.

This practice is okay in most cases - However if your tenant is unhappy with any deposit deductions and makes a complaint, you will have a harder time proving your case since you didn't store his deposit correctly.