In San Francisco, a landlord holding a tenant’s security deposit is legally obligated to pay interest on that deposit annually. The amount of interest accrued is calculated based on the average of the interest rates paid on passbook savings accounts by the three largest banks in San Francisco. For example, if the average interest rate is 1%, a landlord holding a $2,000 security deposit would owe the tenant $20 in interest for that year.
The requirement to pay interest on security deposits safeguards tenants’ financial interests. It ensures that the deposit retains its value over time, offsetting the effects of inflation. Historically, this regulation evolved to address concerns that landlords were profiting from tenant deposits without providing any return. Compliance with this regulation prevents potential legal issues and promotes fair housing practices.
