In the City of Chicago, lessors who demand and accept a security deposit from a lessee in a residential rental agreement have a legal obligation to hold that deposit in an interest yielding savings account and return the earned interest to the lessee after every 12-month lease period. This arrangement makes too much sense to me to not be implemented everywhere! Or at least in Santa Barbara.
Just as tenants are expected to be responsible stewards of a residence (an expectation backed by the monetary guarantee of a security deposit), landlords should have an equal obligation to be responsible stewards of a tenant’s property — the security deposit!
While the interest accrual is admittedly miniscule (0.01% in Chicago), this interest structure has a demonstrated potential to disincentivize landlords from requiring security deposits in the first place. This is a worthy objective considering the financial difficulties these deposits impose on renters, as they can be as much as twice the monthly rent.
If landlords had an obligation to pay interest on and be accountable for the security deposit, some may decide it isn’t worth their while, as has happened in many lease agreements in Chicago. And those who choose to require a deposit will be obligated to treat it as a deposit under ownership of the tenant, not as rental income, and be required to provide proof to that effect. Tenants, like landlords, deserve an equal guarantee of the responsible stewardship of their property by the possessing party (period!) and the law should require it.
