Security Deposit Interest Calculator
Calculate interest owed on a tenant security deposit using state-specific 2026 rates. Covers the 15 states that require interest including Massachusetts at 5%, Minnesota at 1%, and Connecticut at the 2026 deposit index rate, all on a simple-interest basis.
Deposit & Tenancy
Jurisdiction
About 15 states plus several cities require interest on security deposits. Rates range from 0.49% to 5% per year, almost always simple interest.
Leave blank to use the state default. Override if your lease or local ordinance sets a different rate.
Interest Owed
Enter the deposit, state, and time held, then click calculate.
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Introduction
Most landlords do not realize that roughly 15 states require interest on security deposits, and the penalties for skipping it are severe. In Chicago, a landlord can owe twice the deposit. In New Jersey, the tenant can apply the deposit plus 7% per year against rent. In Massachusetts, wrongful withholding triggers treble damages plus attorney fees. The ipropertymanagement state law survey tracks the rules, and the rates range from Connecticut's 2026 deposit index of 0.49% up to 5% in Massachusetts, Iowa, North Dakota, and Ohio. Almost every state uses simple interest, not compound, which makes the math straightforward but easy to get wrong if you forget how long the deposit was held or which rate applies. This calculator handles the state-specific rate, the holding period, and the simple-interest calculation, and shows the rule and penalty context for the jurisdiction you select.
What This Calculator Does
This tool calculates the interest owed on a security deposit from the deposit amount, the state, the months held, and an optional rate override. It applies the correct default rate for each state that requires interest, computes simple interest over the holding period, and reports the total amount owed at move-out. It includes the legal method and penalty context for each state so you know how and when to pay.
The Formula
Security deposit interest is almost universally simple interest, meaning it accrues on the original principal only and does not compound. The rate is the annual percentage set by the state statute or local ordinance. The time is the number of months the deposit was held divided by 12 to convert to years. For a $2,500 deposit held 24 months in Massachusetts at 5%, the interest is $2,500 x 0.05 x 2 = $250, and the amount owed at move-out is $2,750. States that use a market or passbook rate default to a low figure unless you override it with the actual rate your bank paid.
Step-by-Step Example
Enter the deposit and holding period
A Massachusetts landlord enters a $2,500 deposit held for 24 months.
Select the state
She selects Massachusetts, which defaults to 5% simple interest paid annually.
Read the result
Interest accrued is $250, and the amount owed at move-out is $2,750, paid annually or credited to rent per the statute.
Real-World Use Cases
Move-out reconciliation
A landlord calculates the interest owed on a deposit held three years so the final accounting is accurate before deducting for damages, avoiding a penalty claim for underpayment.
Annual interest crediting
A Connecticut landlord computes the 0.49% 2026 deposit index interest each January to credit the tenant's rent or pay it directly, as the statute requires.
Multi-state portfolio compliance
A property manager with buildings in Massachusetts, Minnesota, and Virginia uses the calculator to apply the correct rate in each state, since the rates range from 1% to 5% and the payment timing differs.
Common Mistakes to Avoid
Using compound interest instead of simple. Every state that requires deposit interest uses simple interest. Compounding overstates what you owe and is not the legal standard. If a tenant demands compound interest, the statute does not support it.
Forgetting the minimum holding period. Some states only require interest after the deposit is held 6 or 12 months, like Illinois (25+ units, 6+ months) and Minnesota (12+ months). A short tenancy may be exempt, but you must confirm the threshold before skipping the payment.
Applying the wrong state's rate. Rates reset annually in states like Connecticut and Illinois. Using last year's rate is wrong. Check the current year's index or passbook rate before calculating.
Ignoring local rent control ordinances. A state with no requirement can still have cities that impose one. San Francisco, Berkeley, and Chicago have local rules even where state law is silent or conditional. Always check the local ordinance.
Frequently Asked Questions
Which states require interest on security deposits?
About 15 states require it, including Connecticut, Illinois, Iowa, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Pennsylvania, Virginia, and Arizona under certain conditions. Several cities including Chicago, San Francisco, and Berkeley impose local rules even where state law does not.
Is security deposit interest simple or compound?
Simple. Every state that requires interest uses simple interest, calculated on the original principal for the holding period. Compounding is not the legal standard, and a tenant demanding compound interest has no statutory basis for it.
What happens if I do not pay the required interest?
Penalties are steep. Massachusetts adds treble damages and attorney fees for wrongful withholding. New Jersey lets the tenant apply the deposit plus 7% per year against rent. Chicago exposes the landlord to twice the deposit. The cost of noncompliance is many times the interest owed.
Do I owe interest if the deposit was held less than a year?
It depends on the state. Some require interest only for deposits held 6 or 12 months or more, like Illinois (25+ units, 6+ months) and Minnesota (12+ months). Check the specific state rule, since short tenancies may be exempt.
Can I deduct damages from the deposit before paying interest?
Yes, but the interest accrues on the full deposit for the holding period, and damages are deducted from the principal plus interest at move-out. You cannot reduce the interest by claiming damages during the tenancy. The accounting happens at the end, and you must provide an itemized statement.
Accuracy and Disclaimer
This calculator applies state-specific default interest rates for security deposits as of 2026 and computes simple interest over the holding period. State laws and annual index rates change, and local rent control ordinances can impose additional requirements even where state law is silent. The penalty context provided is a general summary, not legal advice. Consult a licensed landlord-tenant attorney in your jurisdiction for case-specific guidance, especially before withholding any portion of a deposit.
Conclusion
Getting security deposit interest right is cheap insurance against a costly penalty. Calculate what you owe here, then manage the broader rental with our Property Management Fee Calculator and project the investment with the Rental Property Cash Flow Calculator.
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