In the City of Chicago, lessors who demand and accept a security deposit from a lessee in a residential rental agreement have a legal obligation to hold that deposit in an interest yielding savings account and return the earned interest to the lessee after every 12-month lease period. This arrangement makes too much sense to me to not be implemented everywhere! Or at least in Santa Barbara.
Just as tenants are expected to be responsible stewards of a residence (an expectation backed by the monetary guarantee of a security deposit), landlords should have an equal obligation to be responsible stewards of a tenant’s property — the security deposit!
While the interest accrual is admittedly miniscule (0.01% in Chicago), this interest structure has a demonstrated potential to disincentivize landlords from requiring security deposits in the first place. This is a worthy objective considering the financial difficulties these deposits impose on renters, as they can be as much as twice the monthly rent.