Landlord Guide on Tenant Security Deposit Interest in the state of Maryland
Security Deposit interest is required to be paid to the tenant upon move out per MD state law if they resided in the home for longer than a 6 month period. It is very important that Landlords return interest to the tenant properly or they can face penalties. If security deposit interest is not paid upon the return of the tenant’s security deposit the tenant can make a claim in district court for up to three times the amount of the security deposit.
Security Deposits are required to be stored in a separate bank account designated only for security deposits. You cannot put the money into a personal account, or as a landlord you could face penalties. The account you store the funds in can accrue interest however the required interest to be returned on a tenant’s security deposit is not linked to the bank account or interest rate at which the funds are stored.
The guidelines on security deposit interest require using a complex formula that utilizes the US Treasury Yield Curve. This is a much higher rate of return than on any standard commercial bank account. The best way to calculate the proper interest rate is to use the calculator on the MD DHCD website.
For example, If you were to put the funds into a commercial bank account the interest would not correlate to the rate of return required by law. On the typical security deposit held over 2 years the interest from a bank account would be around $1 to $2 but by the states calculation you would be required to return between $50 and $100. This would be an expense to the homeowner and you would be required to pay this interest out of pocket.
In summary make sure you pay the tenant the security deposit interest upon return of the security deposit to prevent penalties. Use the Calculator on the DHCD website to ensure you have the correct amount. Expect the amount to be significantly more than if you were to keep it in a commercial bank account, so make sure you budget to pay out the interest at the end of the lease. If you have questions or need assistance with this compliance issue or have any other questions please feel free to reach out to us on our website at our landlord information page below.
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