Guide to Collecting and Managing Security Deposits

When tenants move in, they pay a security deposit that’s held by a landlord until the lease ends. An escrow management system ensures these funds are securely stored and properly handled. The deposit covers any damages beyond normal wear and tear, unpaid rent, or other obligations not met by the tenant.

This guide will teach you when to collect a security deposit, how much it should be, and how to manage security deposit funds.

Why is Collecting Security Deposits Important?

Security deposits put in a no- fee checking accounts shield your rental income and property condition. They ensure tenants take responsibility for their living space and provide a financial buffer for landlords.

Here are the key reasons why security deposits or move-in fees are essential in rental agreements:

Motivates tenants to maintain the property’s condition.
Helps cover cleaning costs after tenants move out.
Secures funds for repairs from property damage.
Pays for outstanding utility bills and unpaid rent. If you need help managing these bills, consider getting a utility management software.
Provides protection for early lease terminations.

For added benefit, you can explore how to get a high-yield savings account to grow security deposit funds while keeping them securely separated.

Steps to Collect Security Deposits and First Month Rent

The best way to collect security deposits is through a reliable, secure online platform like Baselane, which specializes in rental transactions. As a landlord, you benefit from fast, hassle-free transfers directly into your bank account. When comparing a business bank account vs personal bank account, platforms like Baselane make it easy to manage funds professionally and stay compliant.

Here’s how to collect a security deposit online for rental properties through Baselane:

Step 1: Open a Free Account

First, sign up for a free account with Baselane. It gives you access to special banking features designed for landlords. It’s an easy, no-cost way to start managing your rental finances and helps you avoid bank fees.

Step 2: Set Up a Virtual Account for Deposits

Next, create a ‘virtual account’ in Baselane. Think of this as a special online piggy bank for rent security deposits. It keeps this money separate from other funds, making tracking easier, similar in concept to putting rent in escrow to ensure funds are properly managed and compliant with local laws.

Step 3: Collect Deposits Online

Now, you’re ready to collect security deposits. With Baselane, tenants can pay their deposits and monthly rent online. They can use bank transfers, deposit checks, or wire transfers. Payments are deposited into your Baselane virtual account or linked business bank account for landlords.

Additional Benefits of Using Baselane

Baselane is an all-in-one property management platform that combines banking, rent collection, and accounting in one place.
Collect and return Airbnb security deposits online.
Earn up to 3.35% APY² on security deposit accounts.
Free online rent collection via debit or credit cards.
Keep track of your money with cash flow analytics and reports.
User-friendly interface and 24/7 customer support.
Physical and virtual Baselane cards with automatic transaction tagging for Schedule E categories.

Security Deposit Tips for Landlords and Rental Property Owners

Handling security deposits wisely is key to a successful rental business. It’s about finding the right balance between protecting your property and maintaining a positive tenant relationship. Whether you use a traditional deposit or a security deposit alternative, here are some tips to help you manage deposits effectively.

Tip #1: Collect Security Deposits Before Tenants Move-In

Many landlords need clarification about when to collect security deposits for their properties.

It’s best to collect the full security deposit and first month’s rent before your prospective tenants move in. This guarantees you will have the funds available in case of damages or unpaid rent. Treat it as a non-negotiable part of your lease term.

It’s a good idea to record a move-in video for new tenants. This way, you have a clear record of what your property looked like at the start.

Tip #2: Collect Security Deposits Online

Collecting security deposits and rent online simplifies the payment process. Use property management software like Baselane to handle transactions safely and efficiently.

Benefits of collecting security deposits and rental payments online include:

Multiple payment options like debit cards, credit cards, and ACH payments.
Clear digital records of all transactions.
Security and privacy of financial information.
Automated reminders to help tenants pay rent and security deposits on time.
Automatically handles prorated rent, late fees, or other charges.

Tip #3: Always Return Security Deposits on Time

As a landlord, it’s crucial to promptly return security deposits to tenants after they move out. Most states require this to be done within 15 to 30 days. Be sure to include a tenant deposit return letter that outlines any deductions and complies with local regulations.

Tip #4: Use Deposits After Tenants Move Out

Sometimes, tenants might ask to use part of their deposit for rent, small repairs, or to cover unpaid bills when they are short on cash.

As a landlord or property manager, you shouldn’t agree to this. A security deposit is meant for costs incurred after the tenant leaves, like unpaid rent or damage repairs. Use it only when the lease ends or if you have to evict someone.

If you need to use the deposit to repair damages beyond normal wear and tear, give your tenants a list of what you’re fixing, with the costs. The contractors or property management company can provide the list of damages.

Tip #5: Charge the Maximum Rental Security Deposit Amount

If you start with a low rental security deposit, asking for more money later can be challenging. If you don’t ask for enough, you might not have the cash you need to fix damages or cover losses when a tenant doesn’t pay rent.

Also, tenants who don’t pay a reasonable security deposit amount might not take as good care of your place.

But how much is a security deposit exactly? To calculate the security deposit amount, you must be aware of the rules in your state. For example:

In Massachusetts, the limit is one month’s rent.
In New Jersey, the limit is 1.5 times the monthly rent.
Nevada allows up to three months’ rent for a security deposit.
States like Florida and Texas have no maximum amount.

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Security Deposit Tips for Smart Landlords

Collecting security deposits and keeping them safe in an escrow bank account is a vital part of a landlord’s job. The security deposit helps to ensure good tenant behavior. Also, if there are issues with lease violations or property damage, landlords know they can cover their costs, while also complying with any state laws that require tracking and paying the applicable security deposit interest rate.

There are many ways to collect security deposits. Many landlords see the benefits of using online apps to simplify collecting security deposits and rent payments.

State	Requirements of Interest Bearing Accounts for Security Deposits
Alabama	Not required
Alaska	Not required. If placed in a trust account advisable. (AS 34.03.070(c)).
Arizona	Not required
Arkansas	Not required
California	Not required
Colorado	Not required
Connecticut	Connecticut law outlines the rights and responsibilities of both landlords and tenants about the collection, holding and return of rent security deposits. See the law here: https://www.cga.ct.gov/current/pub/chap_831.htm#sec_47a-21 Specifically, "(h) Escrow deposit. (1) Each landlord shall immediately deposit the entire amount of any security deposit received by such landlord from each tenant into one or more escrow accounts established or maintained in a financial institution for the benefit of each tenant. Each landlord shall maintain each such account as escrow agent and shall not withdraw funds from such account except as provided in subdivision (2) of this subsection." Landlords must pay tenants interest on security deposits of at least the average commercial banks savings deposit rate as annually determined and published by the Banking Commissioner. Interest must be paid annually on the anniversary date of a tenancy either directly to tenants or as a credit towards the next month's rent.
Delaware	Security deposits must be placed in an escrow bank account in a federally-insured banking institute in the United States. Landlords must disclose the location of the security deposit account (25 Delaware Code S. 5514(b)).
District of Columbia	Security deposits must be placed into interest-bearing escrow accounts in D.C. and be federally or state insured (DC Municipal Regulations Chapter 14 S.308.3). Landlords must post or disclose in writing, at the end of the calendar year, where security deposits are held and the prevailing rate for each six-month period over the past year. At the end of a tenant’s tenancy, the landlord must list for the tenant the interest rate for each six-month period during the tenancy (DC Mun. Reg. Ch. 14 S.308.7).
Florida	Interest-bearing accounts are allowed but not required. Commingling of funds is prohibited (Fla. Stat. Ann. § 83.49(1)(a) & (b)). Landlords must disclose the name and address or the location of the depository, interest or non-interest bearing status, and the interest rate, if any. Bank must have a physical location in Florida. It is advisable to add disclosure language according to (Fla. Stat. Ann § 83.49(2)(d)).
Georgia	Nonrefundable fees are allowed, but not nonrefundable security deposits (O.C.G.A. § 44-7-30). If an owner owns more than 10 rental units or management, including rent collection, is performed by third persons, natural or otherwise, for a fee (O.C.G.A. § 44-7-36), then the Security Deposit must be kept in an escrow account established only for that purpose and the location must be disclosed to the tenant. If an owner owns 10 or fewer rental units, the landlord does not need to deposit in an escrow account (O.C.G.A. § 44-7-31).
Hawaii	Not required
Idaho	It is advisable to keep deposits in interest-bearing accounts, though it is not required. The lease should include the amount of the security deposit, the name of the financial institution where it will be held in escrow, and an explanation of how the landlord will use it at the end of the tenancy (Attorney General Handbook (pg. 6 & 25)).
Illinois	Landlords with 25 units or more must keep security deposits in interest-bearing accounts. Interest must be paid to tenants at a rate equal to the minimum passbook savings account interest rate paid by the largest Illinois commercial bank as of December 31 of the year prior to the beginning of the lease (765 ILCS 715/1). The lessor shall, within 30 days after the end of each 12-month rental period, pay to the lessee any interest that has accumulated to an amount of $5 or more, by cash or credit to be applied to rent due, except when the lessee is in default under the terms of the lease. The lessor shall pay all interest that has accumulated and remains unpaid, regardless of the amount, upon termination of the tenancy (765 ILCS 715/2).
Indiana	Not required
Iowa	Keeping security deposits in interest-bearing accounts is not required; however, if the account is interest bearing, interest earned during the first five years of the tenancy goes to the landlord and thereafter to the tenant. Security deposits may not be commingled with the personal funds of the landlord (Iowa Code 562A.12(2)).
Kansas	Not required
Kentucky	Security deposits must be placed in a bank or lending institute subject to Kentucky or US regulation. Prospective tenants shall be informed of the location of the separate account and the account number. Security deposits may not be commingled with the personal funds of the landlord (Ky Rev Stat Ann 383.580(1)& (3)).
Louisiana	Not required
Maine	Not required. However, security deposits must be held in a bank account or other financial institution so as to keep them beyond the claim of the landlord's creditors and may not be commingled with other funds (14 MRS 6038(1)). The landlord must disclose the account number and the name of the financial institution orally or in writing. This requirement does not apply to any tenancy for a dwelling unit which is part of a structure containing no more than five dwelling units, one of which is occupied by the landlord (14 MRS 6037(2)).
Maryland	Security deposits must be held in financial institutions within Maryland in an account devoted exclusively to security deposits and bearing interest (Md Code Ann 8-203(d)(1)(ii)). Alternatively, deposits may be held in insured certificates of deposits or securities issued federally or by the state of Maryland (Md Code Ann 8-203(d)(2)).
Massachusetts	Security deposits must be held in a separate, interest-bearing account in a bank within Massachusetts. A receipt shall be given to the tenant within 30 days after such deposit is received by the lessor, which receipt shall indicate the name and location of the bank in which the security deposit has been deposited and the amount and account number of said deposit. Failure to comply with this paragraph shall entitle the tenant to immediate return of the security deposit (Mass. Gen. Laws Ann. Ch 186, Section 15B(3)(a)). The tenant must receive the accrued interest (5% or less) at the end of each year or, if the tenancy is less than a year, within 30 days of termination. The landlord must provide a statement to the tenant with the location of the deposit, the amount on deposit, the account number, and the interest payable along with notice that the tenant may take the interest as a deduction of the next month's rent or paid out directly (Mass. Gen. Laws Ann. Ch 186, Section 15B(3)(b)). Commingling of other assets with security deposits is prohibited (Mass. Gen. Laws Ann. Ch 186 Section 15B(1)(e)).
Michigan	No interest is required, but the security deposit must be held in a regulated financial institution beyond the claim of the landlord's creditors for the tenant's benefit (Mich Comp Laws 554.604 & 605).
Minnesota	Security deposits must be held on behalf of tenants and bear simple non-compound interest at a rate of 1% per annum. Interest amounts less than $1 are excluded from payment (Minn Stat 504B.178(2)).
Mississippi	Not required
Missouri	Security deposits must be placed in a financial institution insured by a federal agency. Interest earned belongs to landlords (Mo. Rev. Stat 535.300(2)). Commingling of funds is prohibited.
Montana	Not required
Nebraska	Not required
Nevada	Not required
New Hampshire	A landlord who holds a security deposit for a period of one year or longer must pay to the tenant interest on the deposit at a rate equal to the interest rate paid on regular savings accounts in the New Hampshire bank, savings and loan association, or credit union (RSA 540-A:6(IV)(a)). Tenants may request interest accrued on security deposits every three years, 30 days before the expiration of that year's tenancy. Landlords must comply within 15 days of expiration of that year's tenancy (RSA 540-A:6(IV)(c)). Commingling deposits with the landlord's personal funds is prohibited (RSA 540-A:6(II)(b)).
New Jersey	Landlords with 10 or more units must invest the deposit in insured money market funds or in another account paying quarterly interest at a rate comparable to the money market fund (NJSA 46:8-19(a)(1)). Landlords with fewer than 10 units shall deposit such money in a State or federally chartered bank, savings bank or savings and loan association in this State insured by an agency of the federal government in an account bearing interest at the rate currently paid by such institutions and associations on time or savings deposits.(NJSA 46:8-19(a)(1)). All landlords must pay the tenant interest earned annually or credit it toward rent due.
New Mexico	If the security deposit is greater than one month's rent, the landlord must pay interest on an annual basis equal to passbook interest (N.M. Stat Ann 47-8-18(A)(1)).
New York	If the security deposit is deposited in a bank, the landlord must advise the tenant in writing of the name and location of the bank. If the bank account is interest-bearing, the tenant is entitled to interest minus 1% of the total deposit that the landlord can retain for administration expenses (NY General Obligations Law 7-103). If the building has six units or more, the landlord must put the deposit in an interest-bearing account (NY General Obligations Law 7-103(2-a)). Commingling security deposits with personal funds is prohibited.
North Carolina	No interest is required, but the landlord must deposit funds into a trust account with a licensed and federally-insured depository institution lawfully doing business in North Carolina or furnish a bond from an insurance company licensed to do business in the state. The lease must include the name and address of the financial institution where the deposit is held/ (NC Gen Stat 42-50).
North Dakota	Security deposits must be placed into a federally-insured interest-bearing savings or checking account. Interest belongs to the tenants and must be paid to the tenant upon termination of the lease (ND Century Code 47-16-07.1). However, interest is not required to be paid if occupancy was shorter than nine months in duration (ND Century Code 47-16-07.1(3)).
Ohio	Any security deposit in excess of $50 or one month's rent, whichever is greater, shall bear interest at a rate of 5% per year. Only applicable if the tenant is in possession for six months or more. Interest must be paid to the tenant annually and upon termination of the rental agreement (Ohio Rev. Code Ann. 5321.16(A)).
Oklahoma	Not required, however the security deposit must be kept in an escrow account on behalf of the tenant and maintained in Oklahoma with a federally-insured institute (41 OK Stat 115(A)).
Oregon	Not required
Pennsylvania	Security deposits over $100 must be deposited in an escrow account of an institution regulated by the Federal Reserve Board, the Federal Home Loan Bank Board, the Comptroller of the Currency, or the Pennsylvania Dept. of Banking. Tenants need to be provided with the name and address of the financial institution and the deposit amount (68 PS 250.511b(a)). The escrow account may, but does not necessarily have to, generate interest (68 PS 250.511b(a)). If the deposit is in an interest-bearing account, and the rental has lasted at least two years, then the landlord may receive an administrative fee (up to 1% of the interest rate per year) and the balance of the interest must be paid to the tenant annually (68 PS 250.511b(b) & (c)). Commingling of security deposits with personal funds is prohibited.
Rhode Island	Not required
South Carolina	Not required
South Dakota	Not required
Tennessee	Interest-bearing accounts are not required. Security deposits must be deposited in a financial institution regulated by the state or federal government. Commingling of security deposits with personal funds is prohibited (Tenn Code 66-28-301(a)). Landlords must notify tenants at the time the lease is signed of the location of the account; however, landlords are not required to provide the account number (Tenn Code 66-28-301(h)).
Texas	Not required
Utah	Not required
Vermont	Not required
Virginia	Not required
Washington	Security deposits must be deposited by the landlord in a trust account, maintained by the landlord for the purpose of holding such security deposits for tenants of the landlord, in a financial institution as defined by RCW 30.22.041 or with a licensed escrow agent located in Washington. Unless otherwise agreed in writing, the landlord is entitled to receive any interest paid. The landlord shall provide the tenant with a written receipt for the deposit and written notice of the name and address and location of the institution and any subsequent change thereof. Commingling deposits with the landlord's personal funds is prohibited (RCW 59.18.270). A trust account is not defined by the State and many interpret it to mean a separate checking account where the landlord holds only tenant money. Check with a local attorney if you are uncertain.
West Virginia	Not required
Wisconsin	Not required
Wyoming	Not required. The security deposit refund should be returned "without interest" (Wyo Stat 1-21-1208(a)).

Security Deposit Rules in My States

Each state has slightly different rules for security deposits. At a minimum, most states specify a limit to how much you can collect (usually expressed relative to the monthly rent), a deadline to return an outgoing tenant’s deposit, and how a tenant’s security deposit receipt may be used. Some states also address questions like do escrow accounts earn interest and require that interest be paid to tenants.

State	How Much Can I Collect?	When Do I Have to Return it?	What Can I Use the Security Deposit for?
Alabama	1 month's rent, plus a reasonable amount for pets, tenant alterations, or anything that would increase your liability	60 days	Unpaid rent, and damage beyond normal wear and tear
Alaska	2 months' rent if the rent is $2,000 per month or less, no limit if the rent is over $2,000 per month	14 days after the end of the lease, or 30 days if you’re taking deductions or the tenant doesn’t give proper notice	Unpaid rent, and damage beyond normal wear and tear
Arizona	1.5 months' rent	14 business days following the tenant’s request	Unpaid rent, and damage beyond normal wear and tear
Arkansas	A “reasonable” amount, to a maximum of 2 months' rent. No maximum applies if you have six or fewer properties and self-manage your rental	60 days	Unpaid rent (including late fees), cost of cleaning, cost of cleaning, and damage beyond normal wear and tear
California	2 months' rent, or 3 months' rent for furnished units	21 days	Unpaid rent (including late fees), cost of cleaning, cost of cleaning, and damage beyond normal wear and tear
Colorado	No legal limit applies	60 days if specified in the lease, 30 days if not specified in the lease	Unpaid rent (including late fees), unpaid utility bills, cost of cleaning, unpaid utility bills, cost of cleaning, and damage beyond normal wear and tear
Connecticut	2 months' rent, or 1 month's rent if your tenant is age 62 or older	The latter of 30 days, or 15 days after receiving the tenant's forwarding address	Unpaid rent (including late fees), unpaid utility bills, cost of cleaning, unpaid utility bills, cost of cleaning, and damage beyond normal wear and tear
Delaware	1 month's rent, or unlimited if the rental is month-to-month or furnished. Tenants may choose to offer a surety bond instead of a deposit	20 days	Unpaid rent (including late fees), the cost of re-renting the unit if the tenant breaks the lease,and damages beyond normal wear and tear
District of Columbia	1 month's rent	45 days	All costs related to violations of the lease. Reasons for deductions must be stated in the lease or deposit receipt
Florida	No legal limit applies	15 days, or 30 days if you’re taking deductions	Unpaid rent, and damage beyond normal wear and tear
Georgia	No legal limit applies	1 month	Unpaid rent (including late fees), unpaid utility bills, cost of cleaning, unpaid utility bills, cost of cleaning, and damage beyond normal wear and tear
Hawaii	1 months' rent	14 days	Unpaid rent (including late fees), unpaid utility bills, cost of cleaning, unpaid utility bills, cost of cleaning, cost of replacing non-returned keys, and damage beyond normal wear and tear
Idaho	No legal limit applies	21 days, or 30 days if specified in the lease	Unpaid rent, and damage beyond normal wear and tear
Illinois	No legal limit applies	45 days, or 30 days if you’re taking deductions	Unpaid rent (including late fees), unpaid utility bills, cost of cleaning, unpaid utility bills, cost of cleaning, and damage beyond normal wear and tear
Indiana	No legal limit applies	45 days	Unpaid rent (including late fees), unpaid utility bills, unpaid utility bills, damage beyond normal wear and tear, and last month’s rent if stated in the lease
Iowa	2 months' rent	30 days	Unpaid rent, cost of evicting the tenant, and damage beyond normal wear and tear
Kansas	1 month's rent, plus 1/2 months' rent if furnished, and an additional 1/2 month's rent for pets	30 days	Unpaid rent, and damage beyond normal wear and tear
Kentucky	No legal limit applies	30 days, or 60 days if the tenant disputes deductions	Unpaid rent, and damage beyond normal wear and tear
Louisiana	No legal limit applies	1 month	Unpaid rent, and damage beyond normal wear and tear
Maine	2 month's rent	21 days, or 30 days if there is a written/signed rental agreement	Unpaid rent, and damage beyond normal wear and tear
Maryland	2 months' rent	45 days	Unpaid rent, and damage beyond normal wear and tear
Massachusetts	1 month's rent	30 days	Unpaid rent, unpaid water bills, unpaid water bills, unpaid real estate taxes for which the tenant is responsible, and damage beyond normal wear and tear
Michigan	1.5 months' rent	30 days	Unpaid rent, unpaid utility bills, unpaid utility bills, and damage beyond normal wear and tear
Minnesota	No legal limit applies	3 weeks after receiving tenant’s forwarding address	Unpaid rent, and damage beyond normal wear and tear
Mississippi	No legal limit applies	45 days	Unpaid rent, cost of cleaning, cost of cleaning, and damage beyond normal wear and tear
Missouri	2 months' rent	30 days	Unpaid rent, and damage beyond normal wear and tear
Montana	No legal limit applies	10 days, or 30 days if you’re taking deductions	Unpaid rent (including late fees), unpaid utility bills, unpaid utility bills, and damage beyond normal wear and tear including the landlord's labor
Nebraska	1 month's rent, plus ¼ months’ rent for pets	14 days	Unpaid rent, unpaid utility bills, unpaid utility bills, and damage beyond normal wear and tear
Nevada	3 months' rent	30 days	Unpaid rent, cost of cleaning, cost of cleaning, and damage beyond normal wear and tear
New Hampshire	1 month's rent, or unlimited for shared facilities (e.g., rooming houses)	20 days, or 30 days if specified in the lease	Unpaid rent, unpaid real estate taxes for which the tenant is responsible, and damage beyond normal wear and tear
New Jersey	1 1/2 months' rent, may be increased with rent to a maximum of 10% per year	30 days	Unpaid rent, and damage beyond normal wear and tear
New Mexico	1 month's rent, or unlimited if the landlord pays interest	30 days	Unpaid rent, unpaid utility bills, unpaid utility bills, and damage beyond normal wear and tear
New York	1 month's rent, except where rent control laws specify otherwise	14 days	Unpaid rent, and damage beyond normal wear and tear
North Carolina	2 months' rent, plus a reasonable amount for pets	30 days, or 60 days if the tenant disputes deductions	Unpaid rent, unpaid utility bills, unpaid utility bills, cost of evicting the tenant, and damage beyond normal wear and tear
North Dakota	1 month's rent, plus an additional 2 month’s rent to a maximum of $2,500 for pets, plus 2 month’s rent for felony convictions	30 days	Unpaid rent, cost of cleaning, cost of cleaning, and damage beyond normal wear and tear
Ohio	1 month's rent, or unlimited if the landlord pays at least 5% interest	30 days	Unpaid rent, and damage beyond normal wear and tear
Oklahoma	No legal limit applies	45 days	Unpaid rent, and damage beyond normal wear and tear
Oregon	No legal limit applies	31 days	Unpaid rent, and damage beyond normal wear and tear
Pennsylvania	2 months' rent, reducing to 1 month’s rent on renewal (landlord must return excess amount)	30 days	Unpaid rent, and damage beyond normal wear and tear
Rhode Island	1 month's rent	20 days	Unpaid rent, and damage beyond normal wear and tear
South Carolina	No limits, as long as you collect the same amount for all of your comparable units	30 days	Unpaid rent, and damage beyond normal wear and tear
South Dakota	1 month's rent, plus a reasonable amount for additional risks to the property, e.g., pets	2 weeks	Unpaid rent, and damage beyond normal wear and tear
Tennessee	No legal limit applies	30 days	Unpaid rent, and damage beyond normal wear and tear
Texas	No legal limit applies	30 days	Unpaid rent, tenant's failure to give proper notice before moving out,and damage beyond normal wear and tear
Utah	No legal limit applies	30 days	Unpaid rent, cost of cleaning, cost of cleaning, and damage beyond normal wear and tear
Vermont	No legal limit applies	14 days	Unpaid rent, unpaid utility bills, unpaid utility bills, cost of removing abandoned property, and damage beyond normal wear and tear
Virginia	2 months' rent	45 days	Unpaid rent, unpaid utility bills, unpaid utility bills, and damage beyond normal wear and tear
Washington	No legal limit applies	21 days	Unpaid rent, and damage beyond normal wear and tear
West Virginia	No legal limit applies	The lesser of 60 days or 45 days after a new tenant moves in, plus 15 days if damage exceeds deposit amount and professional work is required	Unpaid rent, unpaid utility bills, unpaid utility bills, cost of removing abandoned property, and damage beyond normal wear and tear
Wisconsin	No legal limit applies	21 days	Unpaid rent, unpaid utility bills, unpaid utility bills, and damage beyond normal wear and tear
Wyoming	No legal limit applies	The earlier of 30 days or 15 days after receiving the tenant’s forwarding address if applied to unpaid rent, plus 30 days if applied to damage	Unpaid rent, cost of cleaning, cost of cleaning, and damage beyond normal wear and tear

Bottom Line

A security deposit is your safety net when there’s damage or unpaid rent. To protect yourself, always check how much security deposit can a landlord charge in your state, collect the maximum allowed, clearly state its terms in the lease, follow deposit laws, and promptly return any unused portion when your tenant moves out.

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FAQs

Do I Need to Include the Security Deposit Terms in the Lease?

Yes, you should always include the security deposit terms in your lease agreement. This part of the lease should clearly state the deposit amount, when it's due, if it earns interest, and when it will be returned. In some places, like the District of Columbia, you must also specify how you can use the deposit.

How Much Money Should I Collect as a Security Deposit?

Usually, one month's rent is standard, but in high-demand areas, you might be able to ask for more. The ideal security deposit amount depends on your rental's location and state laws.

For example, New York, Massachusetts, and Ohio cap the security deposit at one month's rent, while California, Pennsylvania, and Maryland allow up to two months' rent. States like Indiana and Florida have no set limit.

What Is an Escrow Account, and When Do I Need One?

An escrow account is where a third party holds your tenant's security deposit. In this setup, a bank or company keeps the deposit safe, and you and the tenant can only use it once it's time to pay out according to the lease.

In some states like Connecticut, Delaware, Georgia, Oklahoma, and the District of Columbia, an escrow account is required for security deposits. Other states might have different rules, like needing a surety bond.

How Do I Return My Tenant’s Security Deposit?

You should typically return your tenant's security deposit in 14 days to two months, depending on your state's laws.

Here's how to do it:

Do a final inspection to assess any damage and estimate repair costs.
Provide your tenant with an itemized list of deductions, as required by most states.
Keep clear documentation of deductions and reasons for them.
Return the remaining deposit to your tenant using one of these methods:
- Check or bank transfer
- Certified check or cashier's check
- Escrow payout (if applicable)
- Use instead of rent payment (if intended for last month's rent)

What Can I Do If My Tenant’s Security Deposit Isn’t Enough to Cover My Costs?

If your entire security deposit doesn't cover your costs, you may need to take legal action. Your tenant is responsible for the full cost of unpaid rent and damages, even if their deposit isn't enough.

You can file a claim in small claims court to seek compensation beyond the deposit. This involves submitting an application, paying a fee, attending hearings, and providing evidence of the damage and responsibility. However, pursuing legal action can be time-consuming and may not be worth it for smaller claims.

Saad Dar

Financial Technology, Real Estate Investing, and Property Management, Accounting and Tax, Finance

Saad started his career as a Certified Public Accountant (CPA) working for a top-tier accounting firm. He was responsible for helping audit alternative investment funds. He later worked at a hedge fund where he was responsible for preparing financial statements and implementing new technology. He also ran a successful private tax practice for five years. After completing his MBA at Duke, Saad joined The Boston Consulting Group to do management consulting. At BCG his experience spanned several industries and growth projects across Pharma, Retail, and Technology companies. His passion for democratizing finances led him to Plaid, a fintech, where he worked with large Banks and Financial Institutions to make finances and money easier for all.

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Why is Collecting Security Deposits Important?