When a landlord takes a rental deposit from a tenant, it goes into a bank where it collects interest. In most states, landlords are allowed to keep the earned interest from a rental deposit, though some states require landlords to pay their tenants interest on a rental deposit. In this case, a landlord usually sets up a separate account for the rental deposit. The interest rate that a landlord must pay should be stated in a rental agreement. In most cases, the rate will be slightly lower than the bank's interest rate, allowing landlords to keep a portion of the earned interest for administrative costs. Specific laws regarding rental deposit interest differ according to location, though only about 1/3 of all states require landlords to pay rental deposit interest. A few cities, such as Los Angeles, San Francisco, and Chicago require interest payments on rental deposits even though state laws do not require it.