Chicago landlord guide · Updated September 2026

Chicago security deposit rules for landlords

Chicago's security deposit rules are detailed, and small mistakes can cost two times the deposit. Here's what the city's Residential Landlord and Tenant Ordinance (RLTO) asks of you, from the day you collect a deposit to the day you return it.

The short version

Give a signed receipt for every deposit.
Hold it in a federally insured account at an Illinois bank, separate from your own money, and tell the tenant which bank within 14 days.
Pay interest every year on deposits held more than six months. The 2026 rate is 0.01%.
To deduct for damage, send an itemized statement with costs and paid receipts within 30 days of move-out.
Return the rest, plus any interest owed, within 45 days of move-out.

Does the RLTO cover your rental?

Most Chicago rentals are covered. The main exception small landlords should know: units in owner-occupied buildings with six or fewer units are not covered by the RLTO. So if you live in your two-flat and rent the other unit, the city ordinance likely doesn't apply to that unit, though a few other housing types are also excluded.

Even if the RLTO doesn't apply, Illinois' Security Deposit Return Act does. Since 2024 it covers every residential landlord in the state, whatever the size of the building. See the Illinois section below.

When you collect the deposit

Give a receipt. It should show the amount, the owner's name, the date and a description of the unit, and be signed by the person accepting the deposit. If the deposit is paid electronically, an electronic receipt is allowed.
Keep it in the right account. Deposits go in a federally insured, interest-bearing account at a financial institution in Illinois, and can't be mixed with your own money.
Tell the tenant where it is. Name the bank in the lease or in a written notice within 14 days of receiving the deposit.

Interest on security deposits in Chicago

If you hold a deposit (or prepaid rent) for more than six months, you owe the tenant interest each year. You can pay it in cash or as a credit against rent, within 30 days after the end of each 12-month rental period.

The City Comptroller sets the rate every January. For 2026 it is 0.01%, and it has been 0.01% every year since 2015. On a $1,500 deposit that's about 15 cents a year. The amount is tiny, but the obligation isn't: skipping it is still a violation, so put it on your calendar.

When the tenant moves out

Inspect and document. Walk the unit, compare it with your move-in record and take dated photos. Get a forwarding address.
Within 30 days: the itemized statement. If you're deducting for damage, send an itemized statement of the damage with the estimated or actual cost of each repair, and copies of paid receipts. If the work isn't done yet, send estimates now and the paid receipts within 30 days of the statement.
Within 45 days: the return. Return the deposit plus any interest owed, minus unpaid rent and the itemized damage. If you don't send an itemized statement, return the full deposit.

Different deadlines apply after a fire that makes the unit unlivable, so check the ordinance if that's your situation.

What you can deduct, and what you can't

Deductions are limited to unpaid rent and damage beyond normal wear and tear. Wear and tear is the normal cost of renting: faded paint, carpet worn where people walk, a few small nail holes. Damage goes beyond it: large holes, burns, pet stains, broken fixtures. Charge the real cost backed by a receipt or estimate, not a flat penalty, and consider the age of what you're replacing.

Our free security deposit return kit has a wear and tear vs. damage guide with common examples, a room-by-room move-out checklist, and a return letter that itemizes each deduction. For move-in day, our move-in kit has a deposit receipt and a matching move-in checklist.

What happens if you get it wrong

If a landlord fails to follow the RLTO's deposit rules, the tenant can be awarded two times the security deposit plus interest. That's why receipts, the bank notice, yearly interest and on-time statements matter even when the dollar amounts are small.

If your unit isn't covered by the RLTO: Illinois law

The Illinois Security Deposit Return Act applies to every residential landlord in the state. It requires:

An itemized statement of damage with estimated or actual costs and paid receipts within 30 days of move-out, delivered in person, by postmarked mail, or by email to an address the tenant gave you.
If you give estimates, the paid receipts within 30 days of the statement.
If you send no statement, the full deposit back within 45 days.
If you did the repairs yourself, you may charge a reasonable cost for your own labor.

Buildings or complexes with 25 or more units anywhere in Illinois also have a separate state rule on deposit interest.

A simple checklist

Signed receipt at move-in, and the bank named within 14 days.
Deposit in an insured Illinois account, never mixed with your own money.
Yearly interest paid or credited on deposits held more than six months.
Move-in and move-out records with dated photos.
Itemized statement with costs and receipts within 30 days of move-out.
Balance and interest returned within 45 days, and proof of when you sent everything.

Get the free security deposit return kit

The return letter with an itemized statement, a receipts follow-up, a wear and tear vs. damage guide, a move-out checklist, a Chicago interest worksheet and a delivery log. Word and printable PDF, no email required.

Download the free kit

Landlord's Desk keeps each tenant's deposit, rent ledger and documents together, so move-outs start from the record. Founding members get up to 60 days free, then 30% off their first year.

This guide is general information, not legal advice. Rules change; check the current ordinance or talk to a local attorney. Sources: City of Chicago Department of Housing, RLTO summary and 2026 security deposit interest rate notice; Illinois Security Deposit Return Act (765 ILCS 710). Checked September 28, 2026.