If you rent property in lower Fairfield County, getting security deposits right is nonnegotiable. Connecticut has clear rules for how much you can collect, where to hold it, what interest you must pay, and when to return it. A tight process protects you from penalties and disputes and builds trust with your tenants.
Why these rules matter in Connecticut
Security deposits touch every part of your lease lifecycle. Done right, they help you recover unpaid rent and damage beyond normal wear and tear. Done poorly, they create risk, fines, and expensive disputes. Connecticut’s statute sets deposit caps, escrow requirements, interest payments, and strict return deadlines. The Department of Banking publishes the annual interest index you must use, and courts can award double damages for violations. In short, a standardized, well-documented process is the safest path.
Connecticut security deposit basics
A security deposit is the tenant’s money. You hold it in trust and can use it only for specific reasons spelled out in state law.
What a security deposit covers
A deposit can cover:
- Unpaid rent or utilities the tenant agreed to pay
- The reasonable cost to repair damage beyond normal wear and tear
It cannot cover routine maintenance or upgrades you would do between tenants. Your itemized statement should separate chargeable damage from normal aging.
Deposit limits and collection timing
Connecticut caps how much you can collect based on the tenant’s age. The statute sets the maximums and requires you to treat the funds as the tenant’s property. See the state’s rules on deposit caps and tenant ownership in the security deposit chapter of the Connecticut General Statutes Conn. Gen. Stat. § 47a-21.
Best practice is to collect the deposit at lease signing or before delivery of keys so the funds can go straight into escrow.
Separate accounts and recordkeeping
You must immediately place the deposit into an escrow account at a Connecticut financial institution and hold it as escrow agent. Do not commingle with operating funds. Within 30 days of receiving the deposit or moving it to a new bank, you must give the tenant written notice stating the amount held and the name and address of the financial institution see the statute’s escrow and notice requirements.
Keep a clean audit trail: deposit receipts, bank statements, the tenant notice, and any transfer records. If ownership changes, the deposit and records must be transferred to the successor owner under the statute’s rules successor liability.
Prepaid rent versus security deposit
Prepaid rent is rent paid in advance for a future period. A security deposit is collateral for performance under the lease. Label payments clearly on receipts and in your ledger. Do not treat prepaid rent as a deposit or vice versa, because different rules apply to each.
Interest rules and payments in CT
Connecticut requires landlords to pay interest on security deposits each year, using a rate tied to the state’s deposit index. The Department of Banking publishes the index every December for the coming calendar year.
How interest accrues and updates
- Interest accrues annually at a rate at least equal to the deposit index set by the Banking Commissioner for that year. The Department posts the current and prior-year rates on its site Deposit Index and Interest Rates.
- Interest applies on the anniversary of the tenancy and each year after. If a tenancy ends before the next anniversary, pay accrued interest with the final accounting. Narrow exceptions apply for certain student housing and mobile home contexts; see the statute for details Conn. Gen. Stat. § 47a-21.
- Tenants forfeit interest for any month they were more than 10 days late paying rent, unless the lease includes a late charge that preserves interest rights under the statute late-payment effect.
As a reference point, the Banking Commissioner announced the 2025 deposit index at 0.52 percent. Always use the rate published for the calendar year in question 2025 index announcement.
When and how to pay interest
- Timing: Pay or credit interest on each anniversary of the tenancy. If the lease ends midyear, include accrued interest in the deposit return within the statutory deadline.
- Method: You may issue a check to the tenant or credit the amount toward the next month’s rent. Document the payment or credit on a written statement.
- Proof: Keep a payment record and, if crediting, note the credit on the rent ledger. Retain bank statements as backup.
Escrow statements and audit trail
Issue an annual notice or ledger entry showing the prior balance, interest rate used, interest accrued, and disbursement or credit. Keep copies of all escrow bank statements and the initial bank-notice letter. These records demonstrate compliance if there is a complaint to the Department of Banking or a court claim.
Move-in documentation, deductions, and returns
Your goal is to be fair, fast, and well documented from day one through move-out.
Condition reports and photo evidence
- Complete a detailed move-in checklist with the tenant. Use date-stamped photos or video of every room, appliances, finishes, and any preexisting wear.
- Have both parties sign the condition report. Store it with the lease and deposit records.
- Do a pre-move-out walk-through when possible, so the tenant can address issues before vacating.
Allowable deductions versus wear-and-tear
Chargeable items typically include unpaid rent, utilities owed, and damage beyond normal wear. Examples include broken fixtures, large wall holes, or pet stains requiring remediation. Normal wear includes minor nail holes, light carpet traffic, and paint fade.
- Get invoices or written estimates for repairs. If you perform work yourself, document time, materials, and a reasonable hourly rate.
- Keep before-and-after photos to support the itemized deductions.
Return timelines and itemized statements
Connecticut now requires you to return the deposit plus interest, or the balance after lawful deductions with an itemized statement, not later than 21 days after tenancy ends, or 15 days after you receive the tenant’s written forwarding address, whichever is later. Older guides may still reference 30 days, but the law changed effective October 1, 2023 return deadline and itemization rules.
Your itemized letter should include:
- Move-in and move-out dates
- Line-item charges with brief descriptions and amounts
- Copies of invoices or quotes and photo references
- The net amount returned and the method of payment
Send the package by a trackable method to the tenant’s forwarding address and keep proof of mailing. The Department of Banking’s consumer page explains forwarding-address best practices for both sides Banking Department guidance.
Disputes, communication, and next steps
If the tenant objects, review the evidence together. Offer to share photos and invoices. If you cannot resolve it, small claims court is a common venue for deposit disputes. Be mindful that improper withholding can trigger liability for twice the amount of the deposit, and other penalties may apply for willful violations remedies and penalties.
Fairfield County landlord scenarios to watch
Roommates, co-signers, and replacements
- List all adult occupants on the lease and deposit receipt. If one roommate exits and another replaces them, document the swap with an addendum that keeps the deposit intact until the end of the tenancy. Track each party’s liability and keep signatures current.
- If an original tenant wants their share back mid-lease, clarify that the deposit remains with the tenancy. Settlements between roommates should be handled privately unless you conduct a full termination and new lease.
Pets, furnished units, and amenities
- Pets: Spell out pet rules, approved animals, and cleaning standards. Separate normal pet wear from actual damage. Photos matter here.
- Furnished units: Inventory every item with condition notes and photos. Verify make, model, and replacement cost for premium pieces.
- Premium finishes: For stone, hardwoods, and designer fixtures, define what counts as damage versus aging. Vendor quotes protect both sides.
Condo and co-op building rules
Align your move-in and move-out procedures with association bylaws. Many buildings require elevator reservations, move fees, or damage deposits to the association. Your statutory security deposit remains governed by state law even if the building has separate fees. Plan inspections around building schedules and access rules.
Selling a tenant-occupied property
If you sell, the deposit and accrued interest must be transferred to the new owner, and the tenant’s protections continue. The statute sets successor obligations. Provide the buyer with the escrow records, itemized ledgers, and the original bank-notice letter, then notify the tenant of the ownership change successor and transfer duties.
Compliance checklist and next steps
Quick checklist for landlords
- Collect within the statutory caps and document tenant age if relevant deposit caps and definitions.
- Deposit funds immediately into a Connecticut escrow account. No commingling escrow requirement.
- Within 30 days, give written notice with the bank name and address and amount held tenant notice.
- Track the tenancy anniversary and pay or credit interest annually using the Banking Commissioner’s deposit index current index table.
- Maintain a rent ledger. Note any months over 10 days late and the effect on interest late-payment provision.
- At move-in, complete a signed condition report with photos. Repeat at move-out.
- On termination, return the deposit plus interest, or the balance with an itemized statement, within the statutory deadline 21-day rule.
- Keep copies of invoices, estimates, and before-and-after photos for any deductions.
- If ownership changes, transfer the deposit and records to the successor and notify the tenant transfer rules.
When to bring in professionals
- Attorney: Complex deductions, major damage, or contested claims
- CPA: Interest calculations across multi-year tenancies and trust accounting
- Property manager: Turnover coordination, inspections, and documentation
- Banking partner: Proper escrow setup and statement formatting
How a local agent can help
A disciplined leasing process supports better tenant outcomes, lower vacancy, and fewer disputes. A local agent can benchmark rent, structure the lease and addenda, and coordinate pre-list, move-in, and move-out checklists so your deposit handling is seamless.
If you want a compliant, repeatable system for Greenwich, Stamford, or nearby rentals, schedule a strategy call with Robin Bartholomew. We pair data-driven guidance with local execution to help you protect your investment and your time.
Put compliant systems in place now
Connecticut’s deposit rules are precise, but they are manageable with the right workflow. Set up escrow correctly, follow the Banking Commissioner’s annual interest index, document every step, and hit the 21-day return window with a clear, itemized statement. These habits reduce risk, speed up turnarounds, and keep tenants informed.
Ready to standardize your process or prep a unit for market? Schedule a Consultation to tailor this framework to your portfolio and rental goals.
FAQs
How much security deposit can I collect in Connecticut?
- State law caps deposits by tenant age and treats the funds as the tenant’s property held in escrow. Review the statutory caps in Conn. Gen. Stat. § 47a-21.
Do I have to pay interest on security deposits?
- Yes. You must pay or credit interest annually using the rate set by the Banking Commissioner’s deposit index Deposit Index overview.
What happens if a tenant is more than 10 days late paying rent?
- The tenant forfeits interest for that month unless the lease includes a late charge that preserves interest under the statute late-payment rule.
When do I have to return the deposit?
- Not later than 21 days after tenancy ends, or 15 days after you receive the tenant’s forwarding address, whichever is later. Include an itemized statement if you make deductions 21-day deadline.
Where do I hold the deposit?
- In an escrow account at a Connecticut financial institution, separate from operating funds. Provide written bank details to the tenant within 30 days escrow requirement and notice.
What rate applies right now?
- Use the rate published for the current calendar year by the Department of Banking. For example, the 2025 deposit index was announced at 0.52 percent 2025 announcement. Always verify the current year’s rate on the Department’s site rate table.
What are the penalties if I get this wrong?
- Courts can award twice the amount of the deposit for violations of the return rules. Willful escrow violations can trigger fines or other penalties remedies and penalties.
Does Stamford have different rules?
- Security deposit rules are set by state law. Stamford’s site covers other landlord responsibilities, but deposit handling follows the statewide statute. Check local pages for any separate registration needs Stamford landlord information.
