What type of account for holding deposits?

[Aaron J Randolph]

What type of checking or savings account should I use for holding security deposits? Is there a special account I should set up for escrow? Should I have separate accounts for holding each security deposit? 

[Joe Martella]

I would be careful about this and know your state's laws.  For example, in NJ you have to give your tenants interest every year.  Yes, if it is one dollar you have to send them the interest that is generated.  Additionally, you have to notify your tenants on the bank where the security deposit is being held.  

I manage 4 properties.  I have a landlord-tenant security deposit account on each one.  It is not hard to open.  You need a W9 form from your tenant and you go to the bank and they open the account.  I sometimes drop off the paperwork with the bank and they will call me when they had a chance to do all the paperwork so I can just sign later and deposit the check.  

I sent the tenants notices on each one and by January 31, I withdraw the interest earned, deposit it to my checking account and mail a check to the tenant.  In NJ if you do not do this, the tenant can demand their security deposit gain interest at 7%.  I am sure an educated tenant can also challenge you if you ever try to evict them.

Remember, security deposit is not your money.  It is your tenant's money and they have a right to the interest owned.  The key here is know your state's laws.