California state law does not require landlords to pay interest on security deposits, but several California cities do. Whether your landlord owes you interest on your security deposit in California depends on where the unit sits and whether it falls under a local rent stabilization ordinance. If you rent in San Francisco, Los Angeles, Berkeley, or West Hollywood, and your unit is covered by rent control, the answer is almost certainly yes. Everywhere else in the state, the answer is no.
Cities That Require Deposit Interest
The interest requirement comes from local rent stabilization ordinances. If your unit is exempt from rent control, the interest ordinance almost certainly does not apply to you either. Check with your city’s rent board to confirm your unit is covered before doing anything else.
San Francisco
Chapter 49 of the San Francisco Administrative Code requires landlords to pay interest annually on any deposit held for more than one year, regardless of what the deposit is labeled. The Rent Board sets the rate each year based on the average 90-Day AA Financial Commercial Paper Interest Rate published by the Federal Reserve. For 2026, the rate is 4.2 percent, down from 5.0 percent in 2025.1SF.gov. Security Deposits
Interest is not compounded. If a landlord owes several years of interest at once, each year uses the rate in effect when that year’s payment came due. San Francisco does not impose separate penalties for late interest beyond requiring the landlord to pay what is owed, and disputes go to small claims court.1SF.gov. Security Deposits
Los Angeles
Landlords of units covered by the Rent Stabilization Ordinance must pay interest on deposits held for at least one year. The RSO covers most residential units in the city of Los Angeles with a certificate of occupancy first issued before October 1, 1978. The Rent Adjustment Commission sets a simple interest rate each year; for 2026, the rate is 3.03 percent.2City of Los Angeles. Rent Stabilization Bulletin – Interest Payment on Security Deposit
LA landlords have two options. They can apply the commission’s rate, or they can place the deposit in an interest-bearing bank account and pay you the actual interest earned. Landlords who use the bank-account method must give the tenant a copy of the bank statement showing the interest earned that year. If the deposit is not in an interest-bearing account, the commission’s rate applies automatically.2City of Los Angeles. Rent Stabilization Bulletin – Interest Payment on Security Deposit
Berkeley
Berkeley’s Rent Ordinance requires landlords of fully or partially covered units to pay annual interest on security deposits. The Rent Stabilization Board sets the rate each year, and for 2025 it was 0.9 percent. Payment is due by December 31, or the landlord can deduct the owed amount from the tenant’s January rent.3Berkeley Rent Stabilization Board. 2026 AGA and 2025 Security Deposit Interest
West Hollywood
West Hollywood’s Rent Stabilization Ordinance requires landlords to pay interest on security deposits by January 31 each year. The city sets the rate annually based on prevailing interest rates.4City of West Hollywood. Security Deposits and Other Fees
Santa Monica Is Different
Santa Monica is worth flagging separately because tenants often assume the rules match the other rent-controlled cities. They do not. Santa Monica’s Rent Control regulations require landlords to place security deposits in an FDIC-insured interest-bearing account, but the interest earned belongs to the landlord.5City of Santa Monica Rent Control Board. Security Deposits The deposit must stay in the account until it is returned or lawfully applied.6Santa Monica. Chapter 14 – Security Deposits
How the Interest Is Calculated
Every California city that mandates interest uses simple interest on the original deposit amount. No city permits compounding, so interest from prior years is never rolled into the base.1SF.gov. Security Deposits If your deposit is $2,000 and the applicable rate is 4.2 percent, you earn $84 that year. The rate resets each January, so multi-year calculations use each year’s rate separately.
The San Francisco Rent Board gives a useful example. If a landlord owes two years of interest on a $2,000 deposit payable on November 1, 2026, the tenant receives $100 for 2025 at 5.0 percent plus $84 for 2026 at 4.2 percent, for a total of $184.1SF.gov. Security Deposits
Payment methods vary. Most ordinances let the landlord pay you directly or credit the interest against your next month’s rent. In Berkeley, the landlord can deduct owed interest from January rent if December 31 passes without a separate payment.3Berkeley Rent Stabilization Board. 2026 AGA and 2025 Security Deposit Interest When you move out mid-year, the landlord owes a prorated amount for the partial year, paid with the deposit refund inside the 21-day return window set by state law.7California Legislative Information. California Code Civil Code Section 1950.5
If Your Landlord Hasn’t Paid
Confirm coverage first. Not every California city requires interest, and even in cities that do, the requirement applies only to units covered by rent stabilization. Your city’s rent board or housing department website will tell you whether your unit qualifies and what rate applies for each year.
Once the obligation is clear, send a written demand letter. Reference the specific local ordinance, state the amount owed, and give the landlord a reasonable deadline. Send it by certified mail so you have proof of delivery. A demand letter is not legally required in most cities, but it resolves the issue without court more often than tenants expect, and it shows good faith if you do file a claim.
If the demand is ignored, small claims court is the standard next step. California small claims courts handle claims up to $12,500 for individuals.8Judicial Branch of California. Small Claims in California Filing fees as of January 2026 track the amount you are seeking:
- $1,500 or less: $30
- $1,501 to $5,000: $50
- $5,001 to $12,500: $75
These fees come from the statewide civil fee schedule and apply in every California county.9Judicial Branch of California. Superior Court of California Statewide Civil Fee Schedule – Effective 01/01/2026 Most deposit-interest disputes fall into the lowest tier, so filing usually costs $30 to $50.
Bad Faith Penalty Under State Law
California Civil Code Section 1950.5 includes a penalty provision for landlords who act in bad faith. If a court finds that a landlord wrongfully withheld all or part of a security deposit, it can award the tenant up to twice the deposit amount as a statutory penalty on top of the actual amount owed.7California Legislative Information. California Code Civil Code Section 1950.5
This penalty applies to the deposit itself, not specifically to interest. Whether a court would apply it to unpaid interest alone depends on the facts. San Francisco’s Rent Board has noted that no separate penalty attaches to late interest beyond requiring the landlord to pay what is overdue.1SF.gov. Security Deposits When a landlord withholds both the deposit and accrued interest at move-out, though, the bad faith penalty gives tenants real leverage.
Taxes on Deposit Interest
Security deposit interest you receive is taxable at the federal level and is reported the same way as bank interest. If a landlord pays you $10 or more in interest during the calendar year, they must issue you a Form 1099-INT.10Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID Even if the amount is below $10 and no form arrives, you are still supposed to report it on your return. California does not add a separate state-level reporting requirement; the interest flows through from your federal return into your California taxable income.