Security Deposit: What to Expect When You Sign a Lease

When it comes to renting, there are some fees and payments that everyone is familiar with. These include rent payments and utilities, as well as sometimes having to pay for parking or storage. But there is one large expenditure related to renting that you may not be as familiar with and that's the security deposit.

But what is a security deposit? How much is it? When does it need to be paid? What is it used for? In this article, we'll answer all your questions related to this crucial payment. That way, you'll be as informed as possible when it comes time to sign that lease and pay those rental fees.

What is a security deposit?

A security deposit is an amount of money that a tenant pays to a landlord prior to moving into a rental property. Essentially, it's like an insurance for the managers/owners to protect their property from damage by the tenants. The amount can vary by state or property, but it generally relates to the cost of the monthly rent. It can sometimes also be a flat fee.

The funds are held by the landlord or property manager for the duration of the lease. At the end of the lease, that money is returned to the tenant in full following an inspection of the rental to ensure it meets standards.

If there are any damages or fees that need covering, that amount will be deducted from the security deposit and the remainder is returned to the tenant.

A person holding keys to a new apartment while the other person holds out their hand.

When do I pay my security deposit?

The security deposit is usually paid to the landlord or property manager before you can receive your keys for move-in. Tenants will generally pay when first signing their lease, which means they'll also be paying for the first month's rent and any other due fees.

Sometimes you also have to pay a rent deposit, which is paying for the last month as well as the first. Security deposits can be paid by check, money order or electronic (ACH) payment.

How much is a security deposit?

In general, a security deposit will be the equivalent of one or two month's rent. For example, if your rent is $500 and your landlord requires a two-month deposit, you'll need to have $1,000 on-hand for the security deposit.

Your credit score can also impact how much you need to put down. Higher credit scores will result in lower security deposits, while low credit scores can mean that — unless you have a co-signer — the security deposit amount will be higher.

There are other factors that can also determine how much a tenant is charged for the security deposit. These include the rental application (credit, employment history, any criminal records, etc.), rental type and quality, state laws and local market rates.

Up close lease agreement and key.

Why do landlords collect security deposits?

While not all landlords and property managers collect security deposits, it is standard practice and generally expected.

Landlords collect security deposits as a financial safeguard to protect their properties from damage by residents and ensure that all fees are covered. Here are some examples of what a security deposit would cover if it was used:

Property protection

Accidents happen over the course of a lease. Maybe you scuff the floor while moving furniture or bang up the drywall. The fees to fix those would have to come out of the security deposit as they were the tenant's fault. Knowing that they'll be out of a hefty chunk of change if they aren't careful incentivizes tenants to avoid damaging the unit.

Financial protection

Security deposits also cover any fees or rent that hasn't been paid by the end of the lease. So, if you were behind on rent for one month and still haven't paid that back to your landlord by end of the lease, they could take the amount out of the deposit.

Pet protection

If you'll be sharing your new home with a furry best friend, chances are a landlord will also require a deposit for them. This would cover any damages your pet makes to the rental, like tearing up the carpet. Some landlords will also charge a small amount in pet rent on top of the deposit.

What does a landlord do with a security deposit?

Unless there are damages or fees that need covering by the deposit, the landlord does nothing with it. It's merely a just-in-case coverage. Over the course of the lease, the deposit will be kept by the landlord in a bank account that generally is separate from their business bank account.

Because of this, sometimes a security deposit can collect interest. In some states, the tenant is entitled to those earnings when the deposit is returned, whereas in others the landlord retains the interest earnings. This will be something you'll want to be aware of and confirm with your landlord before leasing.

Under what circumstances can my landlord make deductions from my security deposit?

Remember that a security deposit is a protective measure. There are certain circumstances under which your landlord can deduct from it.

There's damage beyond normal wear and tear

Wear and tear are normal and expected from a property, which is why it's the landlord's job to fix or repair things that need updating or fixing. But if you gouge a hole in the drywall or generally damage the unit in an abnormal way, as the tenant it's your responsibility to have it fixed. And the cost of that will come out of your deposit.

In most states, though, there are provisions in place to protect the tenants from having unreasonable or unnecessary fees taken from their deposit by the landlord. For example, in California, security deposits can't be withheld to pay for things like painting or carpet unless they were totally wrecked by the renter.

The landlord is also prohibited from using a deposit to fund repairs for preexisting problems.

damaged stairs in an apartment that will impact a security deposit

You owe unpaid rent or fees

If you have any late fees or unpaid rent at the end of your lease, that can be taken out of your security deposit.

Sometimes a landlord can also deduct from your security deposit in the event that you break the lease without providing adequate notice. So, really try to avoid breaking a lease unless it's absolutely necessary and if it is, give your landlord as much notice as possible.

You left the unit in a mess

Not cleaning the unit before vacating can be another grounds for the landlord to deduct from the security deposit. This is because they may need to hire a cleaning service to properly clean up the unit. That's why it's always a good idea to thoroughly clean the unit and make sure it's in good shape before moving out.

Renters are only required to leave the unit as clean as it was when they first moved in, so that's what you should aim for: that it's clean enough to be move-in ready for the next tenants.

How long will it take to get my security deposit back?

This can vary by lease and state, but most states require the landlord to return your security deposit within 30 days of the tenant vacating the premises. The timeframe will be included in your lease, so make note of that when agreeing to the lease.

If you're not getting some or all of your deposit back, the landlord has to provide a written explanation detailing why, including a descriptive list of deductions. In many states, they even have to provide repair receipts.

What if I don't get my deposit back?

If you don't get your full or part of your deposit back, the simple answer is that it's probably because your landlord had to make deductions to cover costs (which they should notify you of). But if you disagree with why they deducted from the deposit, there are some options for recourse.

First, write a demand letter to the landlord disputing the deductions and explaining why you're entitled to the deposit refund. Be sure to retain a copy for your files.

If you're unable to come to a satisfactory agreement, you can file a lawsuit in small claims court, which handles suits under $10,000. This is a relatively inexpensive and relaxed court option. Or, you can turn to a professional mediator to help everyone see eye to eye.

A calculator next to a lease agreement to determine a security deposit

Are there alternatives to security deposits?

From rent to application fees to the security deposit, applying for and signing for a rental is an expensive process. Luckily, there are some emerging options to replace the security deposit that cost less and are more efficient and painless for everyone involved:

Lease insurance

Increasingly, landlords are pursuing lease insurance options like LeaseLock to eliminate the security deposit from rental proceedings. Similar to insurance, the tenant or landlord pays a small fee (starting at $19 for LeaseLock) per month for coverage against thousands of dollars in property damage.

Pay-per-damage

Instead of dishing out a huge amount to the landlord upfront as a security deposit, through this option, landlords can bill tenants for damages on a case-by-case basis. They can only charge for damages up to the amount of a traditional security deposit, though, and a direct-party company oversees the claim and process to ensure the landlord isn't over-billing the tenant.

Surety bonds

Facilitated through a third-party bonding company, surety bonds allow tenants to only pay a small fraction of the security bond to the landlord. Because the bonding company guarantees that the tenant will pay and abide by the terms of the bond, landlords are able to accept a much smaller deposit as there is a legal guarantee in place.

Do security deposit laws vary by state?

The short answer is yes, security deposit laws can vary widely by state. Some states have “No statutory limits," which means they don't specify how much a landlord can charge for a security deposit. In that case, the amount is at the discretion of the landlord.

In other states, though, there is a cap limit to what the landlord can charge for a security deposit. Many states also have strict laws regarding when the security deposit has to be returned to the tenant after vacating the premises. Here, you can find a full run-down of security deposit laws state-by-state.

Don't feel insecure about security deposits

Having to save and temporarily sign away a large amount of money for a security deposit can feel scary. But it's completely normal and is in the best interest of protecting both your finances and the landlord's money and property. If you maintain the terms of your lease and do not leave anything damaged, you should be able to get your deposit back. And as you've seen above, there is a growing range of options that provide similar benefits to security deposits but at a fraction of the cost.

So, as long as you keep the parties and destructive animals to a minimum, you are covered. Security deposits are just a necessary part of the rental process.

This article fits under the following categories:

Zoe BaillargeonZoe Baillargeon is an award-winning writer and journalist based in Portland, Oregon, where she covers a variety of beats including travel, food and drink, lifestyle and culture for outlets like Apartment Guide, Rent.com, AFAR.com, Fodor's, The Manual, Matador Network and more. In her free time, she enjoys traveling, hiking, reading and spoiling her cat.

Recent Articles

Nearly every city in the country has some sort of “It's a [enter city name] thing." It's no different for

Maximizing space is key to living with baby in a one-bedroom apartment.