The bottom line for California landlords
California state law (Civil Code §1950.5) governs security deposits but is silent on interest. There is no statewide requirement to pay a tenant interest on the deposit — the legislature has considered it repeatedly and has never passed a bill. The result is that deposit-interest law in California is a patchwork of city ordinances, and where they apply, they are mandatory and enforced.
If your unit is in Los Angeles (RSO-covered), San Francisco, West Hollywood, Berkeley, Santa Monica, Hayward, East Palo Alto, Watsonville, or a small number of other cities, you owe interest. If your unit is anywhere else in California, you don't. There is no middle ground — either the local ordinance covers you or it doesn't.
The penalty for non-compliance varies by city but is universally bad: in San Francisco, willful failure to pay deposit interest exposes the landlord to actual damages plus statutory damages, treble in some cases. In Los Angeles, failure can result in Housing Department citations and tenant offsets against future rent. None of these are worth the small interest amounts you'd save.
Why no statewide law?
California's deposit cap (one month's rent for unfurnished, two for furnished prior to AB 12; one month's rent across the board after July 1, 2024 with limited exceptions) is already among the strictest in the country. The legislature has historically left interest as a local-control issue — the cities with the most expensive housing and the strongest tenant-side political coalitions (SF, LA, Berkeley) added their own requirements decades ago.
Statewide deposit-interest bills (AB 1837 in 2018, several others before) have died in committee repeatedly. The political reality is that small landlords in lower-cost California cities push back hard against any statewide rule, and the legislature has consistently deferred to local ordinances.
City-by-city requirements
Here is the master table of California cities that require deposit interest, the rates, and the timing rules. Rates change annually in most cities — always confirm the current year's rate with the relevant rent board before paying out.
| City | Required? | Recent rate | How rate is set | Payment timing | Coverage |
|---|---|---|---|---|---|
| Los Angeles (city) | Yes — RSO units only | ~0.07% (set annually) | Set by Housing Department; tied to bank passbook rates | Annually or at move-out (tenant choice) | RSO-covered units (typically pre-Oct 1978 buildings) |
| San Francisco | Yes — all rentals | ~0.6% - 2.7% (varies by year) | Annual rate set by Rent Board, tied to passbook savings rate | Annually (every Sept rent) or at move-out | All residential rental units |
| West Hollywood | Yes — RSO units | ~0.1% - 0.5% | Set annually by Rent Stabilization Commission | Annually on lease anniversary | RSO-covered units |
| Berkeley | Yes — all covered units | ~0.1% - 0.5% | Annual rate set by Rent Stabilization Board | Annually in December | Most rental units except 2-or-fewer owner-occupied |
| Santa Monica | Yes — RSO units | ~0.1% - 1% | Set by Rent Control Board annually | Annually or at move-out | RSO-covered units |
| Hayward | Yes | ~0.1% - 0.4% | Set by Rent Review Office | Annually | Residential rentals under RRSO |
| East Palo Alto | Yes | ~0.1% - 0.5% | Annual ordinance | Annually | Rent-stabilized units |
| Watsonville | Yes | ~0.1% - 0.3% | Annual ordinance | Annually | Most residential rentals |
| Cotati | Yes | ~0.1% - 0.3% | Local ordinance | Annually | Mobile home and rental units |
| Beverly Hills | No | — | — | — | Has rent stabilization but no interest mandate |
| Culver City | No | — | — | — | Has TPO but no interest requirement |
| Oakland | No | — | — | — | Has rent control but no deposit interest mandate |
| San Diego, San Jose, Sacramento, Long Beach | No | — | — | — | No local deposit interest ordinance |
Rates above are illustrative ranges based on recent years. Always confirm the current rate with the local rent board before paying — a link is in the Sources section above.
Los Angeles — the rules every LA landlord needs to know
For Los Angeles landlords specifically, deposit interest is a question of which units are RSO-covered. The Los Angeles Municipal Code §151.06.02 requires interest only on deposits held for units subject to the Rent Stabilization Ordinance. The shorthand is: if the building was built before October 1, 1978, and contains two or more units, it's almost certainly RSO. Single-family homes and condos are generally exempt. Buildings post-1978 are typically governed by TPA (the statewide AB 1482) but are not subject to the LA deposit interest rule.
For RSO units, the rate is set annually by the LA Housing Department and has been hovering at extremely low levels (well under 1%) for years, tied to bank passbook savings rates. The rate has been as low as 0.06% in recent years.
Timing: LA gives the tenant the choice. They can take interest paid annually (typically as a credit on rent), or they can have it accumulate and be paid out at move-out. Most landlords default to the annual credit because it's cleaner administratively. Either way, the landlord must track the deposit balance, the date it was paid, and the interest rate that applied each year.
The math on a typical LA RSO unit looks like this: $2,800 deposit held for 4 years at an average annual rate of ~0.1% comes out to roughly $11.20 of interest. The amounts are small. The compliance cost of not paying it (housing department complaints, litigation, rent offset) is much larger.
San Francisco — the highest-stakes city
San Francisco's rule is the strictest in the state. Under SF Administrative Code Chapter 49, every landlord on every residential rental unit must pay the tenant interest on the security deposit, annually, on the anniversary date of the deposit. The rate is set each March by the SF Rent Board and applies for the 12-month period starting March 1.
Recent SF rates have ranged from around 0.1% during the low-rate years to north of 5% in earlier high-rate periods, tied to the Federal Reserve's 12-month dollar deposit rate. In years where rates jumped (e.g., post-2022 Fed hikes), the SF rate has climbed materially — landlords who failed to update their payments got caught.
Penalty: SF tenants can sue for the unpaid interest plus actual damages. Willful failure exposes the landlord to additional statutory damages, and SF has an active rent board that fields these complaints. On a $4,000 deposit at a 2.5% year, that's $100 a year — across a 20-unit building over 5 years, you could easily be looking at $10,000+ in unpaid interest.
How to calculate the interest
The basic formula is the same in every city that requires interest:
- Simple interest, not compound. Most ordinances calculate as: deposit × rate × time held.
- Pro-rate the first and last year. If a tenant moves in mid-year, the first year's interest is for the partial period only.
- Use the rate in effect for each period. Rates change annually. If a tenant has been there 4 years across 4 different rate years, you owe interest at each year's rate for that year's holding period.
Example calculation (SF, illustrative):
- Deposit: $3,500
- Year 1 (March - March): rate 1.2% → $42.00
- Year 2: rate 0.6% → $21.00
- Year 3: rate 2.7% → $94.50
- Year 4 (partial, 6 months): rate 5.2% → $91.00
- Total interest owed: $248.50
Most cities provide an interest calculator on their rent board website. Use it. Don't try to hand-calculate four years across changing rates.
What landlords must document
Whether you're in LA, SF, or Berkeley, the documentation requirements are similar. Keep these records for the entire tenancy plus at least 4 years after move-out:
- Date deposit was paid and amount.
- Annual rate that applied for each year held.
- Interest payment record — date paid, amount, method (rent credit, check, etc.).
- Tenant election form if the city allows the tenant to choose between annual payment and move-out lump sum.
- Itemized statement at move-out showing both the principal deposit balance and the total interest owed, treated as two separate line items.
If you're using property management software (AppFolio, Buildium, DoorLoop), most platforms have a deposit-interest module. Turn it on. Manual tracking across a multi-unit portfolio is how landlords end up missing payments.
Common landlord mistakes
The most expensive mistakes we see in California cities that require interest:
- Forgetting it exists. A landlord buys an LA RSO building, hasn't been told the deposits accrue interest, and three years later faces a class-style claim across all units.
- Using last year's rate. The rate updates annually. Paying the prior year's rate is technically underpayment.
- Paying interest on the increased deposit only.If you raised the deposit in year 2, interest accrues on the full balance during the period it was held, not just the new portion.
- Not adjusting for partial years. Tenant moves in March 15. First-year interest is for the period March 15 to the anniversary, not 12 full months.
- Skipping interest on the move-out itemized statement.Even if you've been paying annually, if any portion of unpaid interest exists at move-out, it must be itemized.
- Treating prepaid interest as a non-refundable charge.You cannot tell the tenant "I've already paid you interest, so the deposit is non-refundable." Interest is separate from deposit principal.
What about post-2024 deposit caps and AB 12?
Effective July 1, 2024, AB 12 caps most California security deposits at one month's rent (down from two for unfurnished and three for furnished). Smaller landlords (owners of two or fewer rental properties with four or fewer units total) may continue to charge up to two months' rent. The cap doesn't change the interest rules — if your city requires interest, it applies to whatever deposit balance you actually hold.
AB 12 does change the math: smaller deposits mean smaller absolute interest amounts, but the same percentage. A reduced cap doesn't get you out of the requirement.
Quick decision tree for landlords
- Is the unit in California? Yes → continue. No → this guide doesn't apply.
- Is the unit in one of the cities listed above?No → no interest owed. Yes → continue.
- Is the unit covered by that city's specific ordinance?(LA: RSO. SF: all rentals. Berkeley: most rentals. WeHo: RSO.) Yes → continue. No → no interest owed.
- Calculate annual interest at the city's posted ratefor each year held. Pay annually (most common) or accumulate to move-out, per the tenant's election where allowed.
- Document everything. Date, rate, balance, payment method, tenant election.
- Itemize on the move-out statement alongside the deposit return.
FAQ
Does California have a statewide security deposit interest law?
No. California has no statewide requirement to pay interest on security deposits. Civil Code §1950.5 covers deposits but is silent on interest. Several cities — including Los Angeles, San Francisco, West Hollywood, Berkeley, and Santa Monica — have their own ordinances requiring interest.
How much interest do California landlords usually owe?
It depends on the city's rate and how long the deposit has been held. In recent low-rate years, LA RSO interest has been as little as $2-$15 per year on a typical deposit. In higher-rate periods or in San Francisco, it has climbed to $50-$200+ per year.
If I'm in Beverly Hills or Culver City, do I owe interest?
Beverly Hills and Culver City have rent stabilization but no deposit interest requirement. You don't owe interest in those cities unless and until the local council passes one.
Can I keep a tenant's interest in lieu of charges?
No. Interest is the tenant's money under the local ordinance. You can't apply it against rent unless the tenant agrees, and you can't retain it as part of a deposit deduction without a specific lawful deduction. At move-out, interest is paid alongside the deposit return.
What if my city's rate is set after the year ends?
Pay at the most recent posted rate when due, then adjust if a retroactive rate is published. Most cities publish current-year rates well in advance.