Minnesota has no statewide cap on security deposits. Under Minnesota Statutes section 504B.178, a landlord must pay 1% simple interest on the deposit. The landlord must return the deposit with interest, or send a written statement of deductions. The deadline is three weeks after the tenancy ends and the tenant gives a mailing address. Deductions are limited to unpaid rent or other money owed under the lease, and damage beyond ordinary wear and tear. Minneapolis adds its own cap.
Minnesota security deposit rules at a glance
| Rule | What the law says | Source |
|---|---|---|
| Deposit cap | No statewide cap. Minneapolis sets a local cap. | Minneapolis Code 244.2040 |
| Interest | 1% a year, simple, not compounded | 504B.178, subd. 2 |
| Return deadline | Three weeks after the tenancy ends and the landlord receives a mailing address | 504B.178, subd. 3 |
| Deductions | Rent or other money due, and damage beyond ordinary wear and tear | 504B.178, subd. 3 |
| Inspection notices | Offer an initial inspection and a move out inspection | 504B.182 |
| Penalty | The amount withheld plus interest, on top of the deposit itself | 504B.178, subd. 4 |
| Bad faith | Punitive damages up to $500 per deposit | 504B.178, subd. 7 |
A worked interest example
Interest is where Minnesota landlords slip, because nobody sees it until move out. Here is how the numbers work.
A tenant pays a $1,500 deposit in full on 15 January 2025. Interest starts on the first day of the next month, 1 February 2025. The tenancy ends on 31 July 2026. The landlord sends the refund on 15 August 2026. Interest runs to the last day of the month in which the landlord complies, which is 31 August 2026.
- Months of interest: February 2025 through August 2026, which is 19 months
- Interest: $1,500 × 1% × 19 ÷ 12 = $23.75
- Refund before any deductions: $1,523.75
Now suppose the move out inspection finds a burn in the carpet that costs $400 to repair. The statement lists the $1,500 deposit, $23.75 interest and the $400 repair with its invoice. The refund is $1,123.75, mailed by first class mail within three weeks.
Two details matter. Interest is simple, so you do not compound it. The statute also excludes interest of less than $1, which only matters for very small deposits or very short stays. If you deduct for damage, interest is still owed on the deposit and goes on the statement.
How the 1% interest rule works
The text of section 504B.178 sets the start and end dates. Interest begins on the first day of the month after the full deposit is paid. It runs to the last day of the month in which the landlord returns the deposit or sends the statement.
Partial payments change the start date. If a tenant pays the deposit in installments, interest starts the month after the final installment clears.
Keep a record of the date each deposit was paid in full. Without it you cannot calculate interest correctly, and an error counts against you.
The three week deadline
The clock starts when two things have happened. The tenancy has ended, and you have received the tenant's mailing address or delivery instructions. You then have three weeks to do one of two things.
- Return the full deposit with interest
- Send a written statement that lists each deduction and the reason, with the balance and interest
Mailing the refund or statement by first class mail within the deadline counts as compliance. Different timing applies in one case. When a unit is condemned, the deadline is five days after the tenant leaves, excluding weekends and holidays.
What you can deduct
The statute allows two kinds of deduction.
The first is rent or other money the tenant owes under the lease. Unpaid rent, unpaid utility charges billed under the lease and other agreed fees fall here.
The second is the cost of restoring the unit to its condition at the start of the tenancy, minus ordinary wear and tear. Faded paint, light scuffs and carpet worn by normal use are wear and tear. Burns, holes, broken fixtures and pet damage are not.
If the tenant disputes a deduction, you carry the burden of proving it was reasonable. Photos from move in and move out, invoices and dated work orders make that case.
Inspection notices under section 504B.182
A 2023 law added inspection notices. Section 504B.182 has two parts.
Initial inspection
At the start of the tenancy, or within 14 days after the tenant moves in, you must tell the tenant they can ask for an initial inspection. If they ask, you schedule it at a time that suits both of you. As an alternative, and only if the tenant agrees, you can share photos or video and both acknowledge the condition in writing.
Move out inspection
Once either side gives notice to end the tenancy, you have a reasonable time to send a written notice. It tells the tenant they can ask for a move out inspection and be present. If they ask, you hold it no earlier than five days before the tenancy ends. The point is to give the tenant a chance to fix problems before you deduct for them.
If the tenant does not ask for an inspection, your duties under that subdivision end. Keep the written notices on file either way.
Penalties and bad faith
If you miss the deadline or withhold money without a proper statement, subdivision 4 applies. You owe the amount withheld plus interest as a penalty, in addition to the amount itself. In practice, a wrongly withheld $600 can cost $1,200 or more.
Bad faith adds punitive damages of up to $500 per deposit under subdivision 7. Bad faith is presumed if you fail to return the deposit or send the statement on time, or break the transfer rule on a sale. You can rebut the presumption by returning the deposit within two weeks after the tenant starts a court action.
Sales and the last month's rent
When the property changes hands
When your interest in the property ends, such as on a sale, subdivision 5 applies. Within 60 days, you must either transfer the deposit and interest to the new owner and tell the tenant, or return them to the tenant. Buyers should confirm the deposit ledger matches the money transferred.
The last month's rent
A tenant cannot use the deposit as the last month's rent. Under subdivision 8, a tenant who withholds the final rent on that basis can owe the rent withheld plus a penalty.
The Minneapolis deposit cap
Minneapolis limits deposits under its Code of Ordinances, section 244.2040, in effect since 1 June 2020. The limit depends on what else you collect at move in.
- If you collect the deposit and the first month's rent, the deposit can be up to one month's rent.
- If you collect more than the first month's rent in advance, such as first and last month's rent, the deposit is limited to half a month's rent. The tenant can then pay it in installments.
Check the city's renter rights page before you set a deposit. Our guide to Minneapolis rental licensing and tenant protection rules covers the rest of the city's requirements.
What to have in place
- A record of the date each deposit was paid in full
- An interest calculation that runs from the month after full payment to the month of refund
- Written notice of the initial inspection option at move in
- Written notice of the move out inspection option once notice is given
- Dated photos, inspection reports and invoices for every deduction
- A calendar entry for the three week deadline, started when you receive the mailing address
For eviction rules in the state, see our guide to the Minnesota eviction process. For other states, our security deposit laws by state table compares caps and deadlines.
Tracking deposit dates in RIOO
Deposit compliance in Minnesota is mostly about dates. In RIOO, deposits are held as liabilities on the lease, with the date received. RIOO move in and move out workflows record inspections, photos and itemized deductions, and the settlement posts to the same lease. RIOO is built natively on Oracle NetSuite, so the refund, the deductions and the ledger agree.
Minnesota deposit questions
What is the maximum security deposit in Minnesota?
There is no statewide maximum. Minneapolis caps deposits based on what else you collect at move in. Check local rules in other cities too.
Does the 21 day deadline start on move out day?
It starts once the tenancy has ended and you have the tenant's mailing address or delivery instructions. If the tenant leaves no address, the clock waits for it.
Do I owe interest if I keep the whole deposit?
Yes. Interest accrues on the deposit, and your statement should show it before you apply deductions.
Can I deduct for cleaning?
Only for cleaning needed to fix conditions beyond ordinary wear and tear, or where the lease makes a charge the tenant owes. Routine turnover cleaning after normal use is hard to justify.
Does the interest rule cover pet deposits?
Section 504B.178 covers any deposit whose purpose is to secure the rental agreement. A pet deposit does that, so treat it the same way for interest and the three week deadline.
This guide is general information, not legal advice. Check the current statute and local ordinances, or speak with a Minnesota attorney, before acting.
