Are tenants entitled to interest on security deposits?

Security Deposits and Interest for Tenants in Illinois

When renting a home or apartment in Illinois, tenants often have questions about the handling of security deposits, including whether they are entitled to receive interest on their deposits. Understanding the state-specific laws and regulations regarding security deposits is crucial for tenants to protect their rights and ensure proper treatment by landlords.

Are Tenants in Illinois Entitled to Interest on Security Deposits?

In Illinois, the answer depends largely on the local jurisdiction within the state and the type of rental agreement.

General Rule under Illinois Law

• No Statewide Law Requiring Interest on Security Deposits: Illinois does not have a statewide statute that mandates landlords to pay interest on security deposits for residential leases. Unlike some states that require landlords to hold security deposits in interest-bearing accounts and pass the interest earnings to tenants, Illinois law does not impose this requirement.
• Local Ordinances May Apply: Despite the absence of a statewide mandate, certain cities in Illinois may have local ordinances that require landlords to pay interest on security deposits. For example:

- Chicago: Under the Chicago Residential Landlord and Tenant Ordinance (CRLTO), landlords of residential units containing 25 or more dwelling units must pay tenants interest on security deposits, provided the tenant has occupied the unit for at least 6 months.

Details on Chicago’s Security Deposit Interest Requirement

If you are renting in Chicago, the following points apply:

• Applicability: The interest requirement applies only if:

- The rental property has 25 or more rental units; and - The tenant has leased the unit for at least six consecutive months.

• Interest Rate: Landlords must pay interest on security deposits at the certificate of deposit (CD) rate offered by the Federal Reserve Bank of Chicago for a one-year, non-negotiable CD, calculated annually.
• Timing of Payment: The interest accrued is payable annually and at the time of refund of the security deposit upon termination of the lease.
• Disclosure Requirements: Landlords must notify tenants in writing of the financial institution where the security deposit is held and the interest rate applied.

Outside of Chicago and its Large Properties

• The majority of landlords in the rest of Illinois—including smaller cities, towns, and rural areas—are not required to pay interest on security deposits unless the lease agreement explicitly states that interest will be paid.
• Tenants should review their lease agreements carefully to see if interest on deposits is contractually provided.

Other Security Deposit Rules in Illinois

In addition to interest, Illinois law provides other important protections and rules about security deposits that tenants should be aware of:

• Maximum Security Deposit: Normally, landlords can charge no more than one and a half months’ rent for the security deposit.
• Return of Security Deposit:

- Landlords must return the security deposit, minus any deductions for damages, within 45 days after the tenant moves out. - If deductions are made, the landlord must provide an itemized statement of damages.

• Use of Deposits: Security deposits can only be used for unpaid rent, damages beyond normal wear and tear, or other charges explicitly allowed by the lease.
• Holding the Deposit: There is no mandatory requirement in Illinois for landlords to hold security deposits in separate or interest-bearing accounts outside of specific local regulations like in Chicago.

Practical Advice for Tenants in Illinois Regarding Security Deposit Interest

• Check Your Lease: Some landlords offer to pay interest on security deposits voluntarily or include such provisions in leases. Carefully review your lease for any clauses regarding interest on your deposit.
• Know Your Location: If you rent in Chicago and your property has 25 or more units, you may be entitled to interest on your deposit after 6 months. For other locations, this is unlikely without a contractual agreement.
• Keep Documentation: Maintain copies of your lease, move-in and move-out inspection reports, and all correspondence related to your security deposit. This documentation will be helpful if a dispute arises.
• Ask Your Landlord: Don’t hesitate to ask your landlord or property management company about their policy on security deposits and whether interest is paid.
• Understand Your Rights: Familiarize yourself with the Illinois Security Deposit Return Act and any applicable local ordinances to better understand landlord obligations.

Summary

In summary, tenants in Illinois generally are not entitled to interest on their security deposits under state law. However, if you rent a property within Chicago containing 25 or more units and have lived there for at least six months, you may be entitled to interest payments on your security deposit. Outside of such areas or provisions explicitly included in a lease, landlords are not required to pay interest.

Being knowledgeable about local laws and thorough in reviewing your rental agreement are the best ways to protect your rights related to security deposits in Illinois.