The interest rate on security deposits in New Jersey is not a fixed number. State law requires your landlord to put the deposit into a specific type of account, and whatever that account earns is what you are owed. The mechanism depends on how many rental units the landlord operates, so your return tracks market rates rather than a figure chosen by the legislature.1Justia. New Jersey Code 46 – Property – Section 46:8-19
How the Rate Is Set
New Jersey’s Security Deposit Act splits landlords into two groups.
If your landlord has ten or more rental units, your deposit must go into one of two places: shares of an insured money market fund established by an investment company based in New Jersey and registered under the federal Investment Company Act of 1940, or a federally insured bank account that pays a variable rate reset at least quarterly. That variable rate must be comparable to the average rate the bank pays on its money market transaction accounts. In practice, this tier tends to pay a bit more than a basic savings rate.1Justia. New Jersey Code 46 – Property – Section 46:8-19
If your landlord has fewer than ten units, your deposit goes into a federally insured bank or savings institution in New Jersey, and it earns whatever rate the institution currently pays on savings or time deposits. That is often a standard savings-account rate, which can be quite low in a low-rate environment.1Justia. New Jersey Code 46 – Property – Section 46:8-19
In both tiers the landlord has no discretion. You get what the account earns. If market rates climb, your interest climbs. If they fall, it falls.
When You Get Paid
Your landlord owes you the interest or earnings on the deposit every year. You choose the form: a direct payment or a credit against your rent. Payment comes due on each anniversary of the tenancy and continues for as long as you remain in the unit, through every renewal.1Justia. New Jersey Code 46 – Property – Section 46:8-19
The interest counts as taxable income. Once the amount paid to you in a calendar year reaches $10, the payer is required to report it on Form 1099-INT, and the IRS expects you to report interest income even below that threshold.2Internal Revenue Service. About Form 1099-INT, Interest Income
The Notice That Tells You the Rate
Within 30 days of collecting your deposit, your landlord must send you a written notice that includes the name and address of the financial institution, the type of account, the current interest rate, and the amount deposited. You should also receive a fresh notice each year when the interest is paid, and another within 30 days whenever the landlord moves the money to a different institution or a different type of account.1Justia. New Jersey Code 46 – Property – Section 46:8-19
That paperwork is how you verify the rate you are earning. If you have never received it, that is a problem with a specific remedy.
If the Landlord Doesn’t Pay Interest or Hasn’t Deposited the Money Properly
The strongest tool in the statute is the right to apply the deposit against rent. If your landlord fails to put the deposit in a proper account, or fails to send the required written notices, you can demand in writing that the full deposit plus 7% annual interest be applied toward your rent going forward. You must give the landlord 30 days to cure the violation after your written demand. There is one exception: if the landlord never deposited the money in a compliant account at all, no cure period is required.3NJ.gov. Security Deposit Bulletin
The 7% figure is set by statute. It applies regardless of what the bank would have paid, and it replaces the normal market-rate calculation once you invoke the remedy.
Rentals That Fall Outside These Rules
Two carve-outs are worth knowing about before you assume the interest requirement covers your situation.
- Seasonal rentals: If the rental term is 125 consecutive days or fewer and you have a permanent residence elsewhere, the interest and deposit-account rules do not apply. The landlord has the burden of proving the rental is seasonal.1Justia. New Jersey Code 46 – Property – Section 46:8-19
- Small owner-occupied buildings: The Act does not automatically apply to owner-occupied buildings with no more than two rental units, counting the owner’s own unit.
Where either exemption applies, you are not entitled to interest under the Security Deposit Act, though the separate one-and-a-half-months’-rent cap on the deposit itself still holds.4Justia. New Jersey Code 46 – Property – Section 46:8-21.2