Paying Interest on your Investment Property Security Deposits

I hope I am “preaching to the choir” when I remind everyone that in Minnesota, you must pay your tenant interest on the security deposit they have on file with you, when they move out. As a landlord, you must return a tenant’s security deposit plus interest or give a written explanation why the deposit (or any portion of it) is not being returned, within 21 days after the tenant moves out and gives the landlord a forwarding address.

Below are the interest rates that apply depending upon when the tenant moved in:

From August 1, 2003 through present, interest is figured at 1% per year.
From March 22, 1996 through July 31, 2003, interest is figured at 3% per year.
From April 28, 1992 through March 21, 1996, interest is figured at 4% per year.
From October 1, 1984 through April 27, 1992, interest is figured at 5.5% per year.

If a tenant’s residency spans more than one interest rate change, you will need to figure the interest for that period until the change (round to the month) and then calculate the total. For example, if your tenant has lived in your investment property since August 2002 and moved out on July 31, 2007, they are entitled to 3% interest for 12 months and 1% for 48 months.

Using the above table will help you easily comply with state law when calculating the interest on your Minnesota investment property security deposits.

8 comments

#1KC InvestmentsMarch 21, 2008, 5:47 pm

Here in Kansas and Missouri I get to keep the interest. I like that better.

#2Andrew PercicJune 18, 2008, 3:34 pm

I googled current rate for security deposits and your site came up. It looks good.

Andrew Percic

#3Cliff PropertiesApril 25, 2009, 9:04 pm

Any change in the 1% rate since March 14,2008 posting date?

Today is 04/25/2009.

Thanks.

#4Scott FicekApril 26, 2009, 1:56 pm

Not that I am aware of.

#5JamesSeptember 5, 2009, 12:01 pm

Dose this chart still hold true today? Do you have the MN law number that covers this. All I can find is prior to 7-31-03 you get 3%. Thanks James

#6FaithAugust 26, 2010, 4:00 am

Do you have to compound the interest (such as annually) at all or can you just use simple interest (such as 1% for 5 years on $1,000 is $50 interest)?

#7FaithAugust 27, 2010, 6:59 am

I just looked into this further and it looks like simple interest is the correct way.

#8White Bear Lake MN Homes for SaleAugust 27, 2010, 7:27 pm

Thanks for another great post, Scott. It’s important to keep in mind that the interest rates covered above are all “simple interest” versus “compounded interest”. This means that a $1000 security deposit earns $10/yr for EACH year the tenant lives in your property.

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