Minnesota Security Deposit Interest Rules

Does Minnesota require interest on security deposits?

Yes. Every Minnesota security deposit accrues 1% simple annual interest under Minn. Stat. § 504B.178, subd. 2. The rate has been fixed at 1% since August 1, 2003, and applies regardless of deposit amount or how long the deposit has been held. There is no $50 threshold and no 6-month minimum-holding period, unlike some other states.

How Minnesota deposit interest is calculated

Simple interest at 1% per year on the actual deposit balance. A $1,500 deposit held 12 months earns $15. A $1,500 deposit held 36 months earns $45. Interest does not compound. Calculate per calendar year of tenancy from the date the deposit was received.

When Minnesota deposit interest must be paid

Minnesota allows the landlord to pay accrued interest either annually during the tenancy or in a lump sum at termination. The choice should be documented in the lease. Most landlords pay at termination as a single line in the deposit reconciliation, since the amounts are small and tracking annual payouts adds operational overhead.

What happens if a Minnesota landlord doesn't pay required interest

The unpaid interest is recoverable by the tenant, and combined with bad-faith withholding of the deposit itself, can trigger punitive damages of up to $500 plus actual damages, attorney fees, and court costs under Minn. Stat. § 504B.178, subd. 7. A small interest amount can become a meaningful liability when combined with the bad-faith penalty.

Worked example: calculating deposit interest in Minnesota

You hold a $2,000 security deposit for a tenant who has lived in your Minnesota rental for 2 years. Minnesota requires 1% simple annual interest on every deposit (Minn. Stat. § 504B.178, subd. 2), with no minimum threshold.

The calculation: $2,000 x 1% x 2 years = $40.00 in interest owed.

Minnesota allows the landlord to pay interest either annually during the tenancy or in a lump sum at termination. If you chose annual payment, you would have paid $20 at the end of Year 1 and owe $20 at move-out. If you chose lump-sum at termination, the full $40 is due when you return the deposit.

Minnesota's 21-day deposit return deadline applies to both the deposit principal and accrued interest.

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 Minnesota compliance tools

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

• Minnesota Eviction Timeline Estimator — Estimate the full eviction process from notice to possession
• Minnesota Maximum Late Fee Calculator — Calculate the highest late fee your lease can enforce
• Minnesota Rent Increase Notice Calculator — Find the required notice period for your planned increase
• Minnesota 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 Minnesota 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 Minnesota deposit interest rate?

1% simple annual interest, fixed by statute. The rate has not changed since August 1, 2003. It applies whether the deposit is $100 or $10,000, and whether the lease is six months or six years.

When must Minnesota deposit interest be paid?

Either annually during the tenancy or in a lump sum at termination, at the landlord's choice. The lease should specify which.

Is there a threshold below which Minnesota deposits don't earn interest?

No. Unlike Ohio (where deposits under $50 are exempt) or some other states, Minnesota applies the 1% rate to every deposit from day one.

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

The tenant can recover the unpaid interest. If combined with bad-faith withholding of the deposit itself, punitive damages of up to $500 plus actual damages, attorney fees, and court costs apply under Minn. Stat. § 504B.178, subd. 7.