Is interest on the deposit paid out or credited?

It is commonly credited toward rent, but it remains the tenant's money and should be recorded clearly.

Last month's rent deposit in Ontario

What you can legally collect, what you can't, and the interest you owe on it every year.

Updated October 2026 · Ontario Residential Tenancies Act, 2006

Short version: the only deposit allowed is for the last month's rent, capped at one month's rent. There's no such thing as a damage deposit in Ontario. And you owe the tenant interest on that deposit at the guideline rate, each year.

What you can collect

Last month's rent — up to one month's rent. Legal.
Key deposit — allowed, but must be refundable and no more than the actual replacement cost of the key.
Anything else — security, cleaning, pet, damage deposits — not allowed. A landlord can't collect them, and if one was taken, it can be ordered returned.

You owe interest — every year

A last month's rent deposit is the tenant's money. You owe interest on it at the rent-increase guideline rate, each year, for as long as you hold it. It's often paid as a credit toward rent.

Example: a $1,500 deposit held for a full year at the 2026 guideline of 2.1% earns $31.50.

How it's calculated (year by year)

Interest compounds by applying each year's guideline to the balance held:

Year	Guideline	Interest on $1,500
2026	2.1%	$31.50
2027	1.9%	$28.50

Use the deposit interest calculator to run the exact years from when the deposit was paid.

Common mistakes

Collecting a "damage" or "pet" deposit — not permitted.
Holding the deposit and never crediting interest.
Charging a key deposit above the real replacement cost.
Raising rent on the deposit month without accounting for the interest credit.

Common questions

Can a landlord ask for a damage deposit in Ontario?

No. Only a last month's rent deposit (up to one month) and a refundable key deposit limited to replacement cost are permitted.

How much interest is owed on a last month's rent deposit?

Interest at the annual rent-increase guideline rate, accrued each year the deposit is held.

Does interest have to be paid out, or can it be a credit?

It's commonly credited toward rent, but it's the tenant's money — keep a clear record either way.

General information — not legal advice. Tenant Trust is not a law firm and does not represent anyone at the Landlord and Tenant Board. Rules change — confirm current requirements on ontario.ca and the LTB before acting.