How to Open an Escrow Account for Security Deposit

Most landlords are unaware that there are laws on where to keep tenant security deposit funds. That’s why it’s important to know how to open an escrow account for security deposit money.

A common mistake is co-mingling security deposit funds with other money in the same bank account.

In the video below we share how to create a partitioned bank account in order to create escrow accounts for security deposits.

How to Open an Escrow Account for Security Deposit?

The video breaks down some of the common issues with landlord security deposit accounts and what to avoid.

The final solution I ended up with was a Capital One 360 Savings account. This allows for 25 sub accounts to individually store each security deposit in an interest bearing account.

This works well for my situation.

Landlord Security Deposit Accounts Mentioned in the Video:

Additional Landlord Tenant Account Resources:

RentPrep State Resources – Here you can read up on your state’s laws to see if there are any regulations specific to your area regarding security deposits.

Nolo State Resources – A helpful resource on landlord-tenant laws

States That Require Tenant Security Deposit Accounts:

• Connecticut – The landlord will need to add interest payments to the security deposit annually. That interest rate should be equal to the average rate paid on savings deposits by insured commercial banks, according to the Federal Reserve Board Bulletin, rounded to the nearest 0.1%.
• Delaware – Landlord must disclose the location of the security deposit. It’s a good idea to check your local area laws to see if your required to do any additional measures.
• District of Columbia – The landlord must make interest payments on the security deposit at the end of the tenancy. The rate should be the prevailing statement savings rate.
• Florida – Within 30 days of receiving the security deposit, the landlord must disclose in writing the following:
  • the rate and time of the interest payments
  • the name of the account depository
  • if the funds will be held in an interest or non-interest bearing accounts
  • Landlords who collect a security deposit must include a copy of Florida Statutes § 83.49(3) in the lease
  • Landlord must pay to the tenant any interest that is earned of the security deposit (either at the end of the tenancy or annually)

  Key takeaways on Escrow Accounts for Security Deposits

  In the video, I mentioned how $40 held up the sale of a rental complex.

  Keeping the security deposit funds in separate accounts is a good practice to set up in regardless of your state laws as it makes keeping track of security deposits easier.

  Be sure that whatever you decide to do, based on your state laws, you follow the rules so you’re not left in a bad spot when you try and keep security deposit funds due to damages.

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