Most landlords are unaware that there are laws on where to keep tenant security deposit funds. That’s why it’s important to know how to open an escrow account for security deposit money.
A common mistake is co-mingling security deposit funds with other money in the same bank account.
In the video below we share how to create a partitioned bank account in order to create escrow accounts for security deposits.
How to Open an Escrow Account for Security Deposit?
The video breaks down some of the common issues with landlord security deposit accounts and what to avoid.
The final solution I ended up with was a Capital One 360 Savings account. This allows for 25 sub accounts to individually store each security deposit in an interest bearing account.
This works well for my situation.
Landlord Security Deposit Accounts Mentioned in the Video:
Additional Landlord Tenant Account Resources:
RentPrep State Resources – Here you can read up on your state’s laws to see if there are any regulations specific to your area regarding security deposits.
Nolo State Resources – A helpful resource on landlord-tenant laws
States That Require Tenant Security Deposit Accounts:
- Connecticut – The landlord will need to add interest payments to the security deposit annually. That interest rate should be equal to the average rate paid on savings deposits by insured commercial banks, according to the Federal Reserve Board Bulletin, rounded to the nearest 0.1%.
- Delaware – Landlord must disclose the location of the security deposit. It’s a good idea to check your local area laws to see if your required to do any additional measures.
- District of Columbia – The landlord must make interest payments on the security deposit at the end of the tenancy. The rate should be the prevailing statement savings rate.
- Florida – Within 30 days of receiving the security deposit, the landlord must disclose in writing the following:
- the rate and time of the interest payments
- the name of the account depository
- if the funds will be held in an interest or non-interest bearing accounts
- Landlords who collect a security deposit must include a copy of Florida Statutes § 83.49(3) in the lease
- Landlord must pay to the tenant any interest that is earned of the security deposit (either at the end of the tenancy or annually)
- Georgia – Landlords must place the deposit in an escrow account in a state or federally regulated depository, and inform the tenant of the location.
- Illinois – Landlords must pay interest on security deposits held for more than six months if they rent 25 or more units in a single building or a complex located on the property.
- Iowa – If the security deposit is held in an interest bearing-account, the landlord must pay interest if the tenancy lasted more than five year. If the tenancy was less than five years the landlord may keep the interest.
- Kentucky – landlords must disclose where the security deposit is being held along with the bank account number. No landlord shall be entitled to retain any portion of a security deposit if not deposited into a separate account.
- Maine – Upon request a Maine landlord must disclose orally or in writing the account number and the of the institution where the deposit is being held.
- Maryland – Landlords must pay interest on security deposit of $50 or more.
- Massachusetts – Landlord must pay tenants 5% interest on the security deposit annually, or the the interest paid by the financial institution (which must be located in Massachusetts. That interest can be paid yearly, and within 30 days of the termination date.
- Michigan – Within 14 days of tenancy the landlord must give the address of the financial institution where the deposit will be held.
- Minnesota – Landlords must also pay 1% simple non-compounded interest on the security deposit.
- New Hampshire – The landlord must pay interest on any security deposit that is held for one or more years. They must also provide a receipt stating the amount of the deposit and where it will be held.
- New Jersey – Landlords must pay tenants interest earned on security deposits, this can be done by annual interest payments or as a credit toward a rent payment. The landlord must disclose where the deposit is being held, amount of the deposit, the type of account, and current rate of interest.
- New York – Landlord must disclosed the name and address of the financial institution where the security deposit is being held and the amount. Also, landlords of non-regulated units in buildings with 6 or more units must pay tenants interest on the security deposit.
- North Carolina – Within 30 days of tenancy the landlord must disclose the name and address of the banking institution where the security deposit is located.
- North Dakota – Landlords must pay interest on the security deposit if the tenancy lasts at least nine months. Interest must be paid at the end of the lease.
- Ohio – Landlords must pay interest on most security deposits with a rate of 5% per year, if the tenancy lasts 6 months or more.
- Pennsylvania – If the security deposit exceeds $100 the landlord must deposit the funds i a federally or state-regulated institution and give the tenant the name and address along with the deposit amount. Tenants who rent the unit for two or more years are entitled to interest starting with the 25th month of tenancy.
- Tennessee – Landlords must put security deposits in a separate account and orally or in writing disclose the location of this account to the tenant
- Virginia – landlords must pay accrued interest on all security deposits at a yearly rate equal to 4% below the Federal Reserve Board discounted rate as of January 1 of each year. The interest is only payable upon a tenancy over 13 months.
- Washington – The landlord must disclose the name and location of the banking institution where the deposit is being held.
Key takeaways on Escrow Accounts for Security Deposits
In the video, I mentioned how $38 held up the sale of a rental complex.
Keeping the security deposit funds in separate accounts is a good practice to set up in regardless of your state laws as it makes keeping track of security deposits easier.
Be sure that whatever you decide to do, based on your state laws, you follow the rules so you’re not left in a bad spot when you try and keep security deposit funds due to damages.