Do security deposits on rental properties have to be held in an interest-bearing account for the benefit of the tenant?

Yes, without question! The Residential Tenancies Act of Alberta states in Section 45 that “… a landlord shall pay annually to the tenant interest calculated at the prescribed rate on a security deposit consisting of money.”. According to the definitions in the Act, “prescribed” means that it will be prescribed in the regulations, and a quick search determines that there is indeed such a regulation in Alberta known as the Security Deposit Interest Rate Regulation.

At this point, you are saying whoa whoa whoa, is this new?

No, but what is new is the interest rate. In this regulation, we are told in section 2 that the prescribed rate “… is the rate that is 3 per cent below the rate of interest that is in effect on November 1 of the previous year for cashable one-year guaranteed investment certificates held or offered by Alberta Treasury Branches Financial.”. So although the interest rate when calculated this way has been “prescribed” as 0 per cent for the past 14 years due to historically low-interest rates during that time, as we all know the interest rates have not stayed low in Canada and this year that calculation through the regulation results in a “prescribed” interest rate as of January 1, 2024 to be 1.6 per cent annually!

Thankfully, there is a chart of these interest rate changes from Service Alberta and an interest rate calculator at the bottom of the page to help landlords calculate their obligations to their tenants based on the length of time the deposits have been held. Visit the link here.

Since it has been 14 years of 0 per cent interest required, let’s re-think some best practices for managing this starting January 1, 2024.

Property managers should check the management agreement they have with the landlord to ensure that the landlord understands that The Residential Tenancies Act of Alberta states in Section 45 that “… a landlord shall pay annually to the tenant interest calculated at the prescribed rate on a security deposit consisting of money.”, and how that prescribed rate is determined. A quick search of the internet at the time of this writing shows that it is not hard to find a high-interest savings account currently paying over 5 per cent per annum. Of course, this fluctuates, but since the prescribed interest rate is described as a minimum annual interest, it wouldn’t be a bad idea to clarify an agreement between the management company and the landlord that any interest earned above the prescribed minimum interest rate of 1.6 per cent will be paid to the property management company annually. This should help to offset some of the additional administration costs associated with the new interest calculations for the tenants.

As for the lease agreement between the landlord and the tenant, this issue should be clearly stated again, but with an agreement between the parties as to whether or not the annual compounded interest is to be actually paid to the tenant each year (which is going to be a mighty small check to cut for most tenancies), or paid to the tenant at the end of the tenancy which is certainly the less administratively burdensome for the property manager.

Although I have been referencing the Residential Tenancies Act in this article, the prescribed interest rate regulation and table also apply equally to Manufactured (Mobile) homes on rented sites through Section 50 of the Mobile Home Sites Tenancies Act.