Most landlords require new tenants to give a security deposit when the new tenant moves in. The security deposit is a payment that is held by the landlord and that is used to protect the landlord from damages to the apartment that may be caused by the tenant during the lease period and that may be used by the landlord for unpaid rent. A security deposit is not applied to the rent bill but is completely separate.
By law, the security deposit may not be any more than two months’ rent; however, if the tenant is 62 years old or older, it may not be more than one month’s rent. The deposit is held by the landlord in an account (escrow account) for the benefit of the tenant; the landlord merely has a security interest in (rights to the deposit if damage is caused or the rent is unpaid) the funds.
The law requires the landlord to put the full amount of the security deposit in an escrow account where it will earn annual interest at a rate set by the Banking Commissioner. The tenant gets credit for the interest for all months in which the rent is paid on time (within the grace period that is set up in the lease). Except in certain situations, the tenant will not receive interest for any months in which the rent was paid after the grace period. A landlord who does not pay the interest due on the security deposit may be sued by the tenant for the amount or may be subject to a fine.