Updated by Marcia Stewart
Most landlords require tenants to pay a security deposit before moving in to make sure that tenants pay rent on time and keep the rental unit in good condition. If a tenant damages the property or leaves early owing rent, the landlord can use the deposit to cover what the tenant owes. State security deposit laws set specific rules as to the maximum amount of the deposit and how it may be used. State laws also cover how and when the landlord must return deposits, including the time limit for doing so, what kind of itemization must be provided, and whether or not the landlord must pay interest on the deposit.
States with rules covering interest payments on deposits include Connecticut, Florida, Illinois, Iowa, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Pennsylvania, and Virginia, as well as the District of Columbia and some cities.
In other states, landlords do not have to pay tenant interest on deposits (or even put the deposit in a separate account). The landlord simply needs to have the money available when the tenant moves out, and to follow state rules as to returning the deposit.
Check your state security deposit laws for details, such as how much interest must be paid (if any), when it is due, any exemptions (such as for landlords who own only a few rental units or for tenancies of a short period of time), and related rules.