California Security Deposit Interest Rules

Does California require interest on security deposits?

No, not at the state level. California does not require landlords to pay interest on residential security deposits statewide. However, several California cities require interest under local ordinances. These rules can be stricter than what state law requires, and they apply when a property is located within those cities regardless of whether the landlord is based elsewhere.

California cities that require deposit interest

Cities including San Francisco, Berkeley, West Hollywood, Los Angeles (in certain rent-controlled units), Watsonville, Hayward, and Santa Monica have ordinances requiring interest on security deposits. Rates vary by city and are typically set annually by the local rent board. San Francisco's rate, for example, is published each year by the SF Rent Board.

How interest is typically calculated in California cities that require it

Most California cities that require interest follow a simple-interest model: deposit times annual rate times years held. The rate is set by the local rent board, often pegged to a market index (passbook savings rate, T-bill rate). Some cities require landlords to credit interest annually rather than only at lease end.

Best practice for California landlords

Even where state law does not require interest, many California operators voluntarily pay interest as a goodwill gesture or to support tenant relationships in rent-controlled markets. If you operate in a city with a local interest ordinance, set up the accrual at lease start and document the rate annually. Commingling deposits with operating funds is generally allowed in California (unlike some states that require separate accounts), but tracking accrual cleanly avoids disputes.

Worked example: calculating deposit interest in California

You hold a $2,000 security deposit for a tenant who has lived in your California rental for 2 years. At the state level, California does not require interest, so no interest is owed under state law. However, if the property is in San Francisco and the SF Rent Board rate is 0.6% for those years, the interest owed is approximately $24.00 ($2,000 x 0.6% x 2 years).

San Francisco requires annual crediting of interest. If you failed to credit in Year 1, you owe the full $24 at move-out.

California state law allows commingling of deposits with operating funds. Local ordinances in San Francisco and Berkeley recommend (but typically do not require) a separate account.

What experienced landlords do differently

• Open a dedicated interest-bearing account before collecting your first deposit. Commingling deposits with operating funds is a common violation that can void your right to any deductions.
• Send an annual interest statement even if the amount is small ($5-15/year on a typical deposit). The cost of a stamp is trivial compared to the penalty for noncompliance.
• Track each deposit in its own line item. If you manage multiple units, a simple spreadsheet with deposit date, amount, account number, and interest paid keeps you audit-ready.

Related California compliance tools

Landlords in California deal with more than just deposit interest. These free calculators cover the other compliance deadlines you need to track:

• California Eviction Timeline Estimator: Estimate the full eviction process from notice to possession
• California Maximum Late Fee Calculator: Calculate the highest late fee your lease can enforce
• California Rent Increase Notice Calculator: Find the required notice period for your planned increase
• California Security Deposit Return Deadline: Know exactly when the deposit must be returned or itemized

See all property management tools for investment, financing, and operations calculators.

Frequently asked questions about California deposit interest

What if I forgot to put the deposit in a separate account?

Fix it immediately: open a compliant account and deposit the funds. Going forward, document the correction. In some states, failure to use a proper account voids your right to claim deductions from the deposit. The sooner you correct, the better your legal position if the issue comes up.

What is the San Francisco security deposit interest rate?

The SF Rent Board publishes the annual interest rate each year. Historical rates have ranged from 0.1 percent to 1.5 percent depending on the market index used. Check the SF Rent Board's current annual rate before calculating interest owed.

Do California landlords need a separate interest-bearing account?

Not required by state law. California allows commingling of deposits with operating funds. Some cities with local interest ordinances recommend (but typically do not require) a separate account to make accrual tracking easier.

What happens if a California landlord doesn't pay required local interest?

Penalties depend on the specific city ordinance. Most ordinances allow the tenant to recover the unpaid interest plus a multiplier (commonly 2x or 3x) plus attorney fees in court. The unpaid interest is also typically deducted from any deductions the landlord tries to claim.

If state law does not require interest, why pay it voluntarily?

In rent-controlled markets, voluntarily paying a small amount of interest at lease end can support tenant goodwill and reduce friction at move-out. For most landlords outside those markets, voluntary interest is not common practice.