Texas Security Deposit Interest Rules

Does Texas require interest on security deposits?

No. Texas does not require landlords to pay interest on residential security deposits. Texas Property Code Chapter 92 governs the handling of security deposits but contains no interest requirement. Landlords may commingle deposits with operating funds, and there is no statutory cap on the deposit amount a landlord can collect.

How Texas security deposits work without interest

Texas law focuses on the return of the deposit rather than its growth. The landlord must return the deposit (minus lawful deductions) within 30 days of the tenant surrendering the premises and providing a forwarding address. The 30-day clock starts when both conditions are met, not just when the tenant moves out.

Texas deposit penalties for landlords

While Texas does not require interest, it imposes significant penalties for bad-faith retention of deposits. Under Tex. Prop. Code § 92.109, a landlord who acts in bad faith by retaining a deposit may be liable for three times the amount wrongfully withheld plus $100 plus reasonable attorney fees. This makes Texas one of the more punitive states for improper deposit handling, even though no interest is required.

Texas deposit rules: no cap, no separate account

Texas does not cap the amount a landlord can collect as a security deposit. Unlike states such as New York (one month's rent) or Massachusetts (one month's rent), Texas landlords can set the deposit amount based on market conditions and risk assessment. Texas also does not require landlords to hold deposits in a separate or interest-bearing account.

Worked example: calculating deposit interest in Texas

You hold a $2,000 security deposit for a tenant who has lived in your Texas rental for 2 years. Texas does not require interest on security deposits, so the interest owed is $0.00.

At move-out, you must return the full $2,000 (minus any lawful deductions for damages beyond normal wear and tear, unpaid rent, or other lease violations) within 30 days of the tenant surrendering the premises and providing a forwarding address.

Texas allows commingling of deposits with operating funds and does not require a separate account. However, you must still be able to produce the deposit at the 30-day return deadline.

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 Texas compliance tools

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

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

Is there a deposit cap in Texas?

No. Texas does not cap the amount a landlord can collect as a security deposit. The amount is negotiated between landlord and tenant, though market norms typically fall between one and two months' rent.

How long does a Texas landlord have to return a deposit?

30 days after the tenant surrenders the premises and provides a written forwarding address. Both conditions must be met before the 30-day clock starts.

What are the penalties for wrongfully withholding a deposit in Texas?

Under Tex. Prop. Code § 92.109, a landlord acting in bad faith may owe three times the amount wrongfully withheld plus $100 plus reasonable attorney fees. This applies whether or not the landlord provided an itemized list of deductions.

Can Texas landlords commingle deposits with operating funds?

Yes. Texas does not require a separate account for security deposits. However, the landlord must still be able to return the deposit within the 30-day deadline, so maintaining adequate liquidity is essential.