Why Alberta Landlords Will Pay Interest on Security Deposits in 2024
There’s a 2024 change Alberta landlords need to know about.
All Alberta landlords have the option to request a security deposit, also known as a damage deposit, from their tenants when they move into rental properties. When the tenants move out, that deposit must be returned (provided there is no damage to the property). As of January 1, 2009, the interest rate on these security deposits has remained at 0%. However, for the year 2024, the interest rate has been adjusted to 1.6%.
How is the Interest Amount on Security Deposits Determined in Alberta?
This change in the interest rate is in accordance with section 2 of the Security Deposit Interest Rate Regulation under the Residential Tenancies Act and Mobile Home Sites Tenancies Act, and came into effect on January 1, 2024. The formula used to determine this interest rate involves subtracting 3% points from the interest rate that ATB Financial charges for a cashable one-year Guaranteed Investment Certificate (GIC) on November 1 of the previous year. On November 1, 2023, ATB was paying 4.6% on a cashable GIC, so the rental deposit interest rate is calculated at 1.6%.
The interest accrued on the security deposit is typically paid to the tenant on an annual basis unless there is a written agreement between the landlord and tenant stipulating otherwise. If they agree in writing that the interest will not be paid annually, then it must be compounded on an annual basis.
In some cases, a landlord may choose to specify a higher interest rate in the residential tenancy agreement. In such instances, the landlord is obligated to provide the tenant with interest on the security deposit, as well as compound it at the agreed-upon higher rate.
What should landlords do?
Security deposits should always be in a different chequing account. This year, take those deposits and invest them into a cashable GIC at your financial institution! This rate would likely be between 4 - 5%. Let the money grow, then when a tenant leaves you will have accumulated interest on their deposit and can return the full amount required.
Alberta Interest Rate Calculator
The Alberta government offers an Online Interest Rate Calculator designed to help landlords and tenants calculate the amount of interest that the landlord is required to pay on the security deposit.
Example from alberta.ca:
Joe moved into his apartment on January 1, 2024, and gave the landlord $1,000 for a security deposit. Joe vacated the apartment on May 31, 2024. Interest would be payable on the security deposit from January 1, 2024 (when the new interest rate takes effect) to May 31, 2024. The amount of security deposit interest paid is prorated based on the number of days he was in the lease (Remember: 2024 is a leap year so there are 366 days in the year). Here’s how to calculate it:
Step 1
Determine the interest owed on a full year: $1,000 x.016 = $16 (security deposit amount x interest rate % for 2024 = $16)
Step 2
Determine the interest owed for each day of a full year: $16/366 = .0437 cents per day ($16 divided by number of days in the year (366 leap year) = interest owing per day)
Step 3
Determine how much interest is owed for the number of days Joe was in the apartment: 152 days x .0437 cents = $6.64 interest payable (days lived in rental unit x interest owing per day = interest payable for 2024)
The total interest payable to Joe would be $6.64. The security deposit plus interest would be $1,006.64.
