What Is Needed to Open a Security Deposit Account?
- Generally speaking, you should not deposit security deposit funds into your personal checking account, according to Nolo. It is unwise, and in some cases, illegal, to mix your personal funds with your tenants' money. Even though you possess the security deposit funds, the money is not technically yours. Therefore, if you want to deposit it into a checking account, open a new checking account that is used strictly for keeping security deposit money. Do not get a debit or ATM card for this account, as you should not plan to spend it. If you own multiple properties, you can open one account for all your security deposits.
- Savings accounts are typically a better idea for keeping security deposit funds safe. They typically pay interest, which can grow the security deposit over time. Who keeps the interest varies by state. For example, in New York, the landlord can keep 1 percent of the interest, and the tenant keeps the rest, according to Legal Assistance of Western New York. So if a savings account pays a 3 percent interest rate, you as the landlord can keep one-third of that interest. Also, savings accounts are designed for keeping money rather than for depositing and spending funds, like checking accounts.
- Requirements to open checking, savings or other types of bank accounts vary by bank and state. In general, you must have a Social Security number or proof of legal residence in the U.S., proof of name, a U.S. address and a government issued driver's license or photo ID. You must be 18 or older. In some cases, you might need a minimum deposit amount, such as a few hundred dollars, especially for savings accounts.
- Some states have strict rules that govern how landlords can deposit security deposits into bank accounts. For example, in New York, landlords must use a New York bank, not an out-of-state bank. Also, landlords must provide tenants with the name and address of the bank used to store the security deposit funds. Landlords and tenants agree on the amount of money for a security deposit, but it is typically equal to one or two months worth of rent payments.
