The Hidden Cost of Security Deposits
Security deposits in the US typically equal 1–2 months' rent. That capital sits idle while you could be earning returns. A $3,000 deposit earning 5% annually costs you $150/year in foregone interest. Over a 3-year lease, that's $450 in opportunity cost — effectively raising your true rent by $12.50/month.
This becomes especially significant for larger deposits or down payments. A $50,000 down payment at a 7% opportunity cost equals $3,500/year, which is an important factor in the rent vs. buy calculation.
Frequently Asked Questions
Yes. States like New York, New Jersey, Connecticut, and Maryland require landlords to hold deposits in interest-bearing accounts and pay that interest to tenants. Check your state's tenant rights laws.
Add your down payment opportunity cost to your monthly ownership costs (mortgage, taxes, insurance, maintenance) and compare to total rental costs. This gives a more accurate break-even analysis for buying vs. renting.