Collecting Interest on Rent Deposit in Toronto

While renting comes with a bit more flexibility than buying a property or perhaps an apartment, when looking to rent, tenants may be subjected to paying a security deposit on top of their first month’s rent deposit.

When it comes to paying a security deposit, there are a lot of myths and facts behind what it is, and whether or not a tenant will receive interest on their deposit.

In short, a security deposit is a lump sum amount, usually equal to one last month’s rent deposit, which a tenant pays upfront. The landlord may then be required to deposit the security deposit in an interest-bearing account.

The deposit is used as a form of financial security on behalf of the landlord, when the tenants vacate the property, the amount owed to them is paid back after any updates or maintenance has been completed on behalf of the landlord will. The security deposit is used to pay for any maintenance or breakage caused by the tenant.

In most instances, some landlords will only require one month’s rent deposit as a security deposit, while others may perhaps require two to three months’ worth. Different cities and municipalities have particular laws and regulations when it comes to security deposits. In some cases, there might not be any regulations on the amount a landlord may request, which can make renting a bit more expensive.

Limit to How Much a Landlord Can Charge as Rent Deposits

As mentioned, some cities and provinces may have different fixed amounts each landlord can ask. In the province of Alberta, the amount cannot surpass more than one month’s rent, while in British Columbia this may be the same, but the fixed amount is not subjected to either one month’s rent, or two.

In most cases, a tenant will be asked to pay at least one month, or one and a half month’s rent as a security deposit before they are allowed to move in.

The Purpose of a Rent Deposit

There can be varying reasons why a tenant may be requested to pay a security deposit.

The first and most well-known reason is to ensure that any damages and maintenance needed on the property or apartment that needs to be fixed or replaced can be paid for with the deposit. This is only subject to instances where a tenant had neglected upkeep, or damages were caused on behalf of the tenant.

There should be an open discussion regarding the rent deposits beforehand between the landlord and tenant, furthermore, during this discussion, all other rent increases, the process of paying rent, interest payable, or interest accrued should be thoroughly indicated in the lease agreement.

If you as a tenant are unsure of how the process regarding rent deposit, you can consult with the tenant board of your building, or review the residential tenancies act.

The second is to secure a rental unit. Some landlords or property owners will lay claim that those interested tenants who can pay the security deposit first will be able to have the first choice on the rental property. This works based on “first-come, first, serve.”

Do You Gain Interest on Rent Deposit?

According to some local regulations and by-laws, landlords should pay interest on a tenants’ security deposit at the end of each rental year. Both the tenant and landlord will decide on whether the amount should be paid out annually, or each month, some tenants will request to keep all interest in the account and be paid by the end of their tenancy contract or when they decide to move out.

Paying interest to your tenants on Security Deposits / Last Months Rent

Interest is paid on a 12-month basis unless otherwise stipulated in the rental agreement, or a verbal or written agreement signed by both the tenant and the landlord. The landlord by law requested to pay the same amount of interest as per the rental increase guideline outlined by local government authorities and rental associations.

The Different Deposits

While a security deposit may be the most well-known type of deposit paid before being able to move into a new apartment or house, some landlords may also request a tenant to pay a pet deposit if any pets are allowed on the property.

Pet Deposit

The amount payable on a pet deposit can be different across provinces and cities, but in most cases, a pet deposit can be required on request from the landlord.

If a tenant has received permission from their landlord to have a pet on the property, the deposit amount can be no more than half of one month’s rent. Even if the tenant has more than one pet, the deposit amount shouldn’t be more than one month’s full rent or half of one month’s rent.

Can a landlord ask for a pet deposit?

This can vary across different landlords, property owners, and real estate groups, and if a landlord does allow the tenant to have any pets, then they may request a pet deposit from their tenant. The amount can be agreed on by the landlord and the tenant and should be indicated in the rental agreement.

Rent Deposit

A rent deposit works basically the same as a security deposit and will most likely be equal to one month’s rent, usually known as the last month’s rent amount paid by the tenant before they are allowed to move in.

Damage Deposit

Landlords may in some instances request a smaller deposit on a rental property, with the amount being secured by the landlord in an interest-bearing account. This deposit may be used to fix up any wear and tear caused by the tenant.


What Is a Key Deposit?

Key deposits are used by owners as a way to secure the keys of the apartment itself, or any other keys needed to access the property. The key deposits are paid by the tenant and are usually the sum amount it will cost to replace a broken, lost, or stolen key. The landlord holds the keys or any separate sets thereof until outstanding amounts have been cleared on their account.

Can a Property Management Account Earn Interest?

In some states, local regulations may require a landlord to transfer any security deposits into an interest-bearing account, with the interest being paid back to the tenant on an agreed-upon timeframe.

When Does a Landlord Have to Return Security Deposit?

The security deposit is usually repaid once a final inspection has been completed on the property, and any necessary wear and tear have been fixed and repaid. The security deposit is repaid no longer than one month later after the tenant has vacated the property.

Do You Apply Last Month’s Rent Applied to The 11th Month of A Lease?

This could vary depending on local rent guidelines and regulations, but in most instances, this may be the case where a landlord will apply the last month’s rent to the 11th month of a lease.

Does a Rent Deposit Earn Interest?

Owners are by law required to ensure any security deposit amount is placed in an interest-bearing account once the new tenant has paid it.

Final Thoughts

Renting can be a bit more tricky to understand, but overall a security deposit is used to ensure a landlord has some sort of monetary security on behalf of the new tenant to ensure any wear and tear caused by the tenant is paid by the security amount.

The lum some are in most cases equal to one month’s rent, and owners will be required to deposit it into an interest-bearing account. The interest is then paid back to the tenant either after one year of tenancy or on any other agreed timeframe.

Both landlords and tenants must be clued up on how security deposits work in their area, as some provinces, and cities will have different guidelines and regulations.

Sabine Ghali

Sabine Ghali

Helping real estate investors build wealth over time

(905) 268-1000

[email protected]

Sabine Ghali, Managing Director at Buttonwood Property Management, Award Winning Real Estate Broker and an Entrepreneur at heart. Sabine is on a mission to help investors create real estate wealth over time in the Greater Toronto Area. Sabine is published in a number of media outlets, including Toronto Star, The Globe and Mail, Toronto Sun, Entrepreneur, Forbes, and Gulf News, among many others.