Who Makes Money on Your Rental Deposit?

NEW YORK – It's a standard practice when it comes to renting property: You put down a security deposit, usually the amount of one month's rent, with your landlord. And that money sits in your landlord's bank account, where it collects interest for the duration of your rental term. When you move out, barring any damages, the deposit is returned to you.

But what about the sometimes substantial amount of interest incurred on your money? In most states, it belongs to your landlord.

Only one-third of all states require landlords to pay their tenants interest on security deposits. In that case, your landlord typically sets up a separate trust account with your deposit. The interest rate to be paid will be in your rental agreement (the rate is usually lower than what the bank pays so the landlord can cover administrative expenses).

If you live in Chicago, Los Angeles, San Francisco or several other cities that set their own rules, your landlord may have to pay you security-deposit interest even if the state law does not require it.

Even if you live somewhere that is in the majority of places where your landlord can pocket the interest, it doesn't hurt to ask. Some landlords are willing to pay you the interest as a matter of course in their business. If your landlord agrees, be sure to include the specifics in the rental agreement.