Does the deposit have to be in an interest-bearing account in Iowa?

No — Iowa law does not require the account to bear interest. Iowa Code § 562A.12(2) requires all rental deposits to be held by the landlord for the tenant "in a bank or savings and loan association or credit union which is insured by an agency of the federal government," and provides that "[r]ental deposits shall not be commingled with the personal funds of the landlord." Note how narrowly that bar is drawn.

What happens if a landlord does not pay deposit interest in Iowa?

No statutory penalty reaches an interest violation specifically.

Does a landlord have to pay interest on a security deposit in Iowa?

Verified August 28, 2026 All Iowa topics →

Iowa does not require landlords to pay interest on security deposits.

Cited to Iowa Code § 562A.12 (rental deposits; custody and ownership of interest earned) (2) and 1 more cited source · Verified August 28, 2026

Deposits must be held for the tenant in a bank, savings and loan association, or credit union insured by an agency of the federal government, and may not be commingled with the landlord's personal funds; the account may, but need not, be interest-bearing. If interest is earned, Iowa Code § 562A.12(2) gives it to the landlord: "Any interest earned on a rental deposit during the first five years of a tenancy shall be the property of the landlord." That allocation is the whole of Iowa's deposit-interest law — it settles who owns interest that happens to be earned, and creates no duty to earn any. A landlord who keeps the money in an account that pays nothing has complied with the section and owes the tenant nothing.

Iowa deposit interest at a glance

Interest owed to the tenant	No — the statute addresses the interest and does not give it to the tenant
How the rate is set	No rate exists — there is no interest duty
Current figure	No published figure exists
Rate rules	No rate rules — no duty exists
Accrual and payment	No payment duty exists
Who and what is covered	No statutory conditions stated — see the summary and notes
Statute controls where or how the deposit is held	Yes
Interest-bearing account required	No
Custody rules	Iowa Code § 562A.12(2) requires all rental deposits to be held by the landlord for the tenant "in a bank or savings and loan association or credit union which is insured by an agency of the federal government," and provides that "[r]ental deposits shall not be commingled with the personal funds of the landlord." Note how narrowly that bar is drawn. It reaches the landlord's personal funds, not every other account the landlord controls — unlike the broader bars in states such as Florida, which forbid mixing the deposit with any other funds of the landlord. Copying the wider formulation onto Iowa overstates the duty. The trust account is an option, not a requirement: "[n]otwithstanding the provisions of chapter 543B, all rental deposits may be held in a trust account, which may be a common trust account and which may be an interest-bearing account." Each of those three is permissive. A landlord may pool deposits in a common trust account, and may keep them in an account that pays nothing.
Penalty for violation	No statutory penalty reaches an interest violation specifically
Local rules	None noted for this state

Cite this page: "Landlord Atlas, Iowa Security Deposit Interest Laws (verified August 28, 2026), landlordatlas.com/laws/deposit-interest/iowa/" — free to cite and quote with a link (how these records are verified). Everything above is cited in the citations section below.

Check the verified Iowa answer — and every state and city that differs — in the deposit interest calculator — free, no signup, built on the same verified Iowa law as this page.

Notes and caveats

"Iowa pays interest after five years" reads a duty into an ownership rule — Section 562A.12(2) allocates interest earned during the first five years of a tenancy to the landlord, and then stops. No sentence in the section gives the tenant interest in year six or at any other point, and no sentence requires the deposit to sit anywhere that earns interest in the first place — the account "may be" interest-bearing. The widely repeated claim that an Iowa tenancy passing five years entitles the tenant to interest turns a rule about who owns money that happens to be earned into a landlord duty the text does not contain.
An allocation rule has no rate and no payment date — Because Iowa imposes no duty to pay a tenant interest, the section sets no rate, no accrual start, no payment deadline, and no payment method. There is nothing for a tenant to calculate. The only figures in § 562A.12 are the two months' rent cap on the deposit itself and the punitive damages ceiling in subsection 7.
The five years run from the tenancy — The allocation covers interest earned "during the first five years of a tenancy" — measured from the tenancy, not from the date the money was deposited and not restarted by a lease renewal.
What the bad-faith penalty covers — Iowa's money penalty is in § 562A.12(7): "The bad-faith retention of a deposit by a landlord, or any portion of the rental deposit, in violation of this section shall subject the landlord to punitive damages not to exceed twice the monthly rental payment in addition to actual damages." Its subject is retention of the deposit, and its trigger is a violation of the section — the duties the section does impose include holding the money at a federally insured institution and keeping it out of the landlord's personal funds. Separately, § 562A.12(8) lets a court award reasonable attorney fees to the prevailing party in any action on a rental agreement.

Common questions: Iowa deposit interest

Each answer is the verified value from the table above, restated as a direct answer. Free to quote with a link to this page.

What is the Iowa security deposit interest rate right now?: No published figure exists.
When must a landlord pay or credit deposit interest in Iowa?: No payment duty exists.
Does the deposit have to be in an interest-bearing account in Iowa?: No — Iowa law does not require the account to bear interest. Iowa Code § 562A.12(2) requires all rental deposits to be held by the landlord for the tenant "in a bank or savings and loan association or credit union which is insured by an agency of the federal government," and provides that "[r]ental deposits shall not be commingled with the personal funds of the landlord." Note how narrowly that bar is drawn.
What happens if a landlord does not pay deposit interest in Iowa?: No statutory penalty reaches an interest violation specifically.
Do any cities or counties in Iowa have their own deposit-interest rules?: None noted for this state.

Citations

Iowa Code § 562A.12 (rental deposits; custody and ownership of interest earned) · (2) (verified 2026) Official source
Iowa Code § 562A.12 (bad-faith retention; attorney fees) · (7), (8) (verified 2026) Official source

How this record was verified: Direct read of Iowa Code § 562A.12 (rental deposits) in the Legislature's official 2026 Code section file, all eight subsections read in full, with subsection 2's custody, trust-account and interest-allocation sentences examined word by word and the remaining subsections examined for any interest term; the phrases 'interest-bearing' and 'interest earned' occur in subsection 2 and nowhere else in the section.