The interest math on a Massachusetts security deposit is the part landlords most often get wrong. The rate is not a flat 5%, and the calculation is not the same as the one you do for last month's rent. The rules look simple until you hold a deposit for two or three years and realize the bank statements and the deduction notices have been quietly accumulating into a problem.
This guide is the worked version. We walk through MGL c.186 §15B(3)(b), show the math on a few common fact patterns, and call out where the deposit-interest rule is genuinely different from the separate last-month's-rent interest rule under §15B(2)(a). For the full §15B compliance picture (move-in receipt, condition statement, 30-day return), see our Massachusetts security deposit law guide.
1. Two interest obligations, two different rules
Section 15B contains two interest provisions that landlords routinely confuse:
| Provision | Applies to | Annual rate | When it accrues | Penalty for missing it |
|---|---|---|---|---|
| §15B(2)(a) | Last month's rent held in advance | 5% or the lesser amount actually received from the bank | From day one of the tenancy | Treble damages under §15B(2)(a) for failure to pay within 30 days of termination |
| §15B(3)(b) | Security deposit held in a separate bank account | 5% or the lesser amount actually received from the bank | From the commencement of the tenancy, payable once held one year or longer | No direct treble damages on the interest itself; deposit principal has its own §15B(7) regime |
The two rules live a few paragraphs apart in the statute and use almost the same language. They are not interchangeable. If you hold both last-month's-rent and a deposit, you have two separate interest streams to track.
This article is about the deposit interest only. The last-month's-rent rule is mentioned for the few places it overlaps; for that mechanic, the master compliance guide has the relevant section.
2. When deposit interest accrues
§15B(3)(b) says interest is owed on a security deposit held "for a period of one year or longer from the commencement of the term of the tenancy." The statute says interest is paid beginning with the first day of the tenancy. The combined effect: interest accrues from day one of the tenancy, but you only owe it once the deposit has been held for at least a year. If the deposit was paid before the tenancy started, the clock for "one year or longer" still runs from the tenancy commencement, not the deposit receipt date.
Two practical consequences:
- If the tenancy ends before the one-year mark, you do not owe interest on the deposit. You still owe last-month's-rent interest under §15B(2)(a) (that rule kicks in immediately), but the deposit walks away clean.
- If the tenancy passes the one-year mark, you owe interest going back to day one — not from the anniversary. Tenants who do the math themselves sometimes miss this and underclaim.
The accrual is a continuous obligation. Each subsequent year of the tenancy adds another annual cycle. There is no statutory cap on how many years of interest can stack up.
3. The 5%-or-actual rate cap
This is the single most-missed rule in §15B(3)(b). The statute says interest is owed at "five per cent per year, or other such lesser amount of interest as has been received from the bank where the deposit has been held."
Translated: 5% is the ceiling, not the floor.
If your separate interest-bearing account at a Massachusetts bank earns 0.05% APY, you owe the tenant 0.05% — not 5%. Your obligation is capped at what the account actually generated.
This protects landlords against the reality that since the statute was written, bank interest rates have spent most of the last two decades well below 5%. It also creates a recordkeeping obligation: if you want to pay less than 5%, you need to be able to prove the lower rate the bank actually paid.
A few rate-cap edge cases:
- Tiered or promotional rates. If the account paid a 0.5% rate for the first six months and 0.15% after, you owe the blended actual amount the bank credited, not a chosen average.
- Negative-rate periods. Modern banks don't charge negative interest on retail accounts in the US, but if the account had monthly fees that reduced the balance, those don't count against the deposit. The interest "received from the bank" is the gross interest credited, not net of fees.
- Account changes mid-tenancy. If you moved the deposit from one compliant account to another, the cap is the actual interest received across both accounts.
4. Worked example: 0.05% APY account, two-year tenancy
Tenant deposits $2,000 on January 1, 2024. Lease is two years. Your separate Massachusetts bank account pays 0.05% APY simple interest.
- Year 1 interest (statutory): $2,000 × 0.0005 = $1.00
- Year 2 interest (statutory): $2,000 × 0.0005 = $1.00
- Total interest owed at termination: $2.00
You owe the tenant $2.00. Not $200. The 5%-or-actual cap collapses the math to a number you can fit on a receipt line. Document the rate from your bank statements.
5. Worked example: 4.5% APY HYSA, three-year tenancy
Same facts, but the deposit sits in a high-yield savings account paying 4.5% APY. Now the actual rate exceeds the 5% statutory ceiling? No — 4.5% is below 5%, so the actual rate governs.
- Year 1: $2,000 × 0.045 = $90.00
- Year 2: $2,090 × 0.045 = $94.05 (if you compound — the statute does not require compounding, but if the account compounds and that's what the bank credited, that's what's "received")
- Year 3: $2,184.05 × 0.045 = $98.28
- Total: $282.33
If the bank paid 6% APY, you'd cap at 5%: $2,000 × 0.05 × 3 ≈ $300 (more if compounded).
The point of the worked example: the 5%-or-actual cap matters in both directions. In a low-rate environment it dramatically cuts the obligation. In a high-rate environment it caps your exposure even if the bank pays more.
6. Annual statement requirements
§15B(3)(b) requires a written statement at the end of each year of the tenancy. The statement must contain:
- the name and address of the bank holding the deposit
- the amount of the deposit
- the account number
- the amount of interest payable by the landlord
The statement goes with the interest payment itself, or with a notice that the tenant may deduct the interest from their next rent payment. Either approach satisfies the statute, but choose one and be consistent.
Under §15B(3)(b) the landlord gives or sends this statement at the end of each year of the tenancy. The 30-day figure is the tenant's self-help trigger: if, within 30 days after the end of the tenancy year, the tenant has not received the interest (or notice that it may be deducted), the tenant may deduct it from the next rent payment — with no further notice or signoff from you. The unilateral-deduction right is in the statute itself — it is not a remedy the tenant has to ask for.
7. The two payment paths
Once you have the year-end statement together, you have two compliant options under §15B(3)(b):
- Pay the interest directly — by check or transfer along with the statement.
- Notice the tenant they may deduct it from next month's rent — include language to that effect in or with the statement.
Both options are equally valid. Most small landlords find the deduct-from-rent path simpler operationally: you skip cutting a $1.20 check, the tenant subtracts the line from the next rent payment, and the bookkeeping records the credit. The mechanics are the same as a utility credit or a repair offset.
The one place the two paths diverge: if the tenancy is ending and the interest is owed at termination (see §8 below), the deduct-from-rent path doesn't work — there's no future rent payment to deduct from. You have to actually pay.
8. The 30-day-after-termination interest payment
§15B(3)(b) requires interest to be paid within 30 days of termination — at the same time the deposit itself is returned under §15B(4).
If you withhold any portion of the deposit (for damage, unpaid rent, water), the interest still has to be paid on the full deposit amount, not the net. The interest you owe is calculated on the original principal, regardless of what comes out for deductions.
The 30-day clock here is the same clock as the deposit-return clock. §15B(6)(e) requires returning the deposit (or its balance) together with any interest thereon within 30 days, and §15B(7) attaches treble damages to a §15B(6)(e) failure. Do not treat the interest as a lesser obligation than the principal: because the statute folds the interest into the same 30-day return duty, a missed interest payment at termination can expose you to the same treble-damages risk. Pay both, on time, in full.
9. Last month's rent interest is genuinely different
This is where the two interest streams diverge in a way that matters for risk:
§15B(2)(a) requires interest on last month's rent at 5% per year (or the lesser amount actually received from the bank, same cap as the deposit-interest rule), payable to the tenant either at the end of each year of tenancy or as a rent-deduction notice. The annual cadence is the same as the deposit, but two details differ: the last-month's-rent statement only has to indicate the amount payable (it is not required to carry the bank name, account number, and address that §15B(3)(b) demands for the deposit statement), and interest does not accrue for the last month for which rent was actually paid in advance.
The teeth: under §15B(2)(a) itself, failure to pay last-month's-rent interest within 30 days of termination subjects the landlord to treble damages on the unpaid interest amount, plus court costs and reasonable attorney's fees. The treble trigger is the termination-payment failure, not every missed annual statement.
The treble rule has its own statutory home — §15B(2)(a) — and it operates independently of the §15B(7) deposit-principal treble regime. A landlord who holds both kinds of funds can stack violations across the two.
10. Where Tenvale fits
The deposit-interest schedule is one of those obligations that is simple in the first year and a quiet liability by year three or four. Most landlords running 3–30 units track it on a spreadsheet that nobody updates after the second tenancy roll.
Tenvale tracks the deposit, the holding bank, and the year-by-year interest accrual alongside the lease, so the year-end statement is something you generate rather than reconstruct. It does not replace a calculator pass at termination — but it does mean the annual paperwork stops being the line item that surprises you in a §15B claim.
For the full §15B compliance picture — separate-account requirement, condition statement, 30-day return clock, the three triple-damages triggers — see the Massachusetts security deposit law guide for landlords.