Security Deposit Interest Rate Change: What Landlords and Tenants Need to Know
Starting January 1, 2024, landlords will need to adjust to a new security deposit interest rate of 1.6%, marking a departure from the 0% rate that’s been in place since 2009. This update, guided by the Security Deposit Interest Rate Regulation under the Residential Tenancies Act and Mobile Home Sites Tenancies Act, aims to better align the interest rates with current financial conditions.
In this blog, we’ll delve into the details of this change, what it means for both landlords and tenants, and how to calculate the interest on security deposits.
Overview of the Change
Since January 1, 2009, the interest rate on security deposits has been set at 0%. However, for the year 2024, the rate has been adjusted to 1.6%. This change, effective January 1, 2024, is derived from a formula that takes the interest rate ATB Financial charges for a cashable one-year Guaranteed Investment Certificate (GIC) as of November 1 of the previous year, then subtracts 3 % points.
Understanding the Regulation
As specified in section 2 of the Security Deposit Interest Rate Regulation under the Residential Tenancies Act and the Mobile Home Sites Tenancies Act, landlords must pay interest on security deposits to tenants annually. However, if both parties agree in writing, the interest can be compounded annually instead of being paid out each year.
Landlords also have the option to agree on a higher interest rate within the tenancy agreement. If they do, they must adhere to this higher rate and pay the tenant accordingly, including the compounding interest.
How to Calculate Security Deposit Interest
The Alberta government provides an online interest rate calculator to help both landlords and tenants determine the interest owed on security deposits. Here’s a detailed example to illustrate how to calculate the interest manually:
Example Calculation
Scenario:
Joe moved into his apartment on January 1, 2024, with a $1,000 security deposit. He moved out on May 31, 2024. The interest rate for 2024 is 1.6%.
Steps to Calculate Interest:
1. Calculate the Annual Interest:
– Security deposit amount: $1,000
– Annual interest rate: 1.6%
– Annual interest: $1,000 x 0.016 = $16
2. Determine the Daily Interest:
– Total days in 2024 (leap year): 366
– Daily interest: $16 / 366 = $0.0437 per day
3. Calculate the Interest for the Rental Period:
– Number of days Joe was in the apartment: 152
– Interest for 152 days: 152 x $0.0437 = $6.64
Therefore, the total interest payable to Joe for his security deposit would be $6.64. Adding this to the original deposit, the total amount returned to Joe would be $1,006.64.
Important Considerations for Landlords and Tenants
– Annual Interest Payments: By default, interest must be paid annually unless otherwise agreed in writing. This can be a significant point to discuss and agree upon at the start of the tenancy.
– Higher Interest Rates: If a higher rate is agreed upon in the tenancy agreement, landlords must ensure they comply with this rate, including compounding interest where applicable.
– Utilizing Online Tools: The government’s interest rate calculator can simplify the process, ensuring accurate and timely payments.
Additional Resources
For more detailed information about returning security deposits and other related regulations, you can visit the official Alberta government website section on Ending a Tenancy.