LA Security Deposit Interest Rates 2026: What Landlords Must Pay Tenants

Most owners think of security deposit interest as a rounding error. For 2026, on a typical LA deposit, it still is a few dollars a year. But the compliance failure sitting behind that small number is not a rounding error anymore, and that’s the part worth actually understanding.

The 2026 Rate, and Why It Jumped

LAHD’s Rent Stabilization Bulletin #44 sets the rate every year under LAMC Section 151.06.02, based on the average interest paid on savings accounts by at least five FDIC-insured banks with LA branches, measured each September 1. Here’s the rate for the last several years, straight from LAHD’s own bulletin:

Year	Rate
2021	0.06%
2022	0.03%
2023	0.04%
2024	0.52%
2025	4.32%
2026	3.03%

For most of the last decade, this rate rounded to nothing, which is exactly why so many owners stopped thinking about it. The jump tracks the broader rise in bank savings rates through 2023 and 2024, and the small pullback for 2026 mirrors savings rates starting to ease. Notice the built-in lag, too: because LAHD measures bank rates every September 1 and applies that figure to the entire following calendar year, the published rate is always describing what banks paid roughly four months earlier, not what they’re paying today. 

That lag is why the rate can feel out of step with current headlines about interest rates falling or rising, it’s measuring last September, not this month.

The Two Ways to Calculate What You Owe

The ordinance actually gives landlords a choice, and most don’t realize it. The default and by far the most common method is the flat rate LAHD publishes each year, 3.03% for 2026, applied as simple interest to the deposit amount for the period held. 

The alternative, rarely used in practice, is paying the tenant whatever the deposit actually earned if it happens to be sitting in a genuine interest-bearing account. Almost no landlord keeps tenant deposits in a dedicated interest-bearing account specifically to track this, which is exactly why the RAC’s published rate is the number that matters for nearly every RSO building in the city.

Who Actually Owes It, and Who Doesn’t

The requirement applies to buildings covered by the City of LA’s Rent Stabilization Ordinance, generally properties built on or before October 1, 1978, where a tenant has held the same unit for more than 30 consecutive days. Interest applies to deposits held at least one year.

It’s worth being precise about what this is not. California’s general security deposit law, the framework governing deposit caps, return timelines, and itemized statements statewide, doesn’t include an interest requirement like this on its own. This obligation exists because of LA’s local RSO, not because of anything in the state Civil Code. 

A landlord with a non-RSO building anywhere else in California, including newer construction inside the City of LA itself, isn’t subject to this specific rule. That distinction matters at sale: a buyer comparing an RSO fourplex against a post-1978 building down the street needs to know only one of them carries this obligation.

What This Actually Costs You

Run the numbers and the stakes become clear fast. On a $2,500 deposit, one year at the 2026 rate comes to about $76, either paid directly or credited against rent. Genuinely small. But RSO buildings are exactly the ones with the longest-tenured residents, since below-market legacy rents are often what keeps a tenant in place for a decade or more. 

Stack ten years of unpaid interest across the actual historical rates on that same $2,500 deposit, including the 2025 spike to 4.32%, and the uncollected total climbs into several hundred dollars per unit. Multiply that across a 20-unit building where nothing has ever been paid or credited, and a seller is looking at a real, cumulative liability sitting on the books, one a buyer’s attorney will find during diligence even if the city never does.

What Happens at Move-Out

The annual payment obligation and the move-out obligation are two separate moments, and both matter. During an ongoing tenancy, the landlord chooses between paying the accrued interest directly or crediting it against rent, and must notify the tenant in writing of that choice, which can be handled monthly or once a year. At termination of tenancy, the rule narrows: only a tenant who has held the deposit for one year or more is entitled to the unpaid accumulated interest, paid out at that point regardless of how the landlord handled it during the tenancy. 

A landlord who never paid annually still owes the full accumulated amount when that tenant finally moves out, which is precisely the scenario that shows up as a surprise line item during an escrow reconciliation.

Where This Gets Expensive: Enforcement

Here’s the detail that catches owners off guard. The Rent Stabilization Division doesn’t investigate non-payment complaints. Under the ordinance, this is a civil remedy only, meaning a tenant has to sue to collect it. 

That sounds like it makes the whole requirement low-stakes. It doesn’t anymore. Tenant-side attorneys have started using a landlord’s security deposit non-compliance as a defense in eviction proceedings, turning a small missed payment into a procedural problem inside a much bigger case. 

An eviction that should be straightforward can slow down or get contested entirely over a paperwork issue that would have cost the landlord under a hundred dollars to resolve years earlier.

We see this exact issue during due diligence on RSO acquisitions: a clean rent roll with an undocumented deposit-interest history is a red flag a buyer’s team will always check. It’s covered in our guide to selling with tenants in place, and it’s one of the first things we verify before listing any rent-stabilized building.

We Check This Before a Buyer Has To

Hi, I am Max Berger, a multifamily broker at Compass in Los Angeles. Small compliance details like deposit interest rarely kill a deal on their own, but undocumented ones make a buyer nervous about everything else in the file. Browse our current listings to see how we present a building’s records, or read how past sales came together on our success stories page. Contact me or call (818) 321-4972 for your free written valuation.

This article is general information based on LAHD’s published bulletin, current as of August 2026, not legal advice. The rate resets annually. Confirm the current figure directly with LAHD, or consult a qualified attorney, before relying on it for an active dispute or transaction.