2025 Guide to Escrow Interest Rates for Landlords and Property Managers

Essential instruments in the real estate and property management fields, such as escrow accounts, enable one to safely handle money, including security deposits, rent payments, and tax or insurance escrows. Knowing escrow interest rates helps landlords and property managers not just with compliance but also with a financial strategy that affects profitability and openness. 

Knowing how escrow interest works, what to expect from rates, and how to effectively manage these accounts will be more crucial in 2025 as more real estate transactions migrate to digital platforms and governments enforce tougher escrow handling rules.

This comprehensive guide will explore how escrow account’s function, current trends in escrow interest, and how platforms like Baselane are adapting to the evolving needs of landlords — without turning this into a brand promotion.

What Is an Escrow Account for Landlords?

An escrow account is a type of financial account whereby money is kept temporarily by a third party or financial institution until specific requirements are satisfied. Escrow accounts are sometimes used in renting real estate for:

• Security deposits

• Advance rent payments

• Tax or insurance impound accounts

• Repair fund reserves during disputes

• Regulatory compliance in rent-controlled areas

Escrow guarantees that landlords and property managers spend money just for their intended use, therefore promoting responsibility and openness. It also gives renters and interested parties’ peace of mind, knowing their money is safe. 

What Are Escrow Interest Rates?

Escrow interest rates are the rate of change in funds in an escrow account over time. Many countries legally mandate that landlords deposit tenant security funds in interest-bearing escrow accounts and reimburse, less any allowed deductions, the principal and accrued interest at the end of the lease. 

However, escrow interest rates vary widely depending on:

• State or local laws

• The financial institution managing the escrow.

• The type of account used (e.g., savings vs. money market)

• The duration the funds are held

In 2025, these rates are generally modest, often ranging between 0.01% to 2.00% APY, depending on the institution and account type. That said, interest earnings on escrowed funds are not meant to be a major income source — they’re about compliance, transparency, and fairness.

States That Require Escrow Interest

Laws forcing landlords to deposit tenant funds in interest-bearing accounts abound in many U.S. jurisdictions. Certain even call for a minimum interest rate. Here are some samples (always check revised laws in your local government): 

Connecticut requires that landlords pay interest on security deposits at a banking commissioner-set rate.

Illinois requires that building owners of 25 or more units pay interest on security deposits.

New York Building owners of six or more apartments have to deposit security money into escrow accounts carrying interest.

Ignoring these rules could lead to fines, lawsuits, or part of the deposit forfeiture. 

Why Escrow Interest Rates Matter for Landlords and Property Managers

While the actual dollar amount earned through escrow interest may be small, understanding and managing these accounts properly offers several advantages:

1. Legal Compliance

Landlords must ensure they meet all escrow-related legal requirements, including interest payout rates and proper recordkeeping. Mistakes can lead to fines or tenant lawsuits.

2. Tenant Transparency

Providing tenants with documentation of interest earned on their deposit builds trust and promotes a professional image.

3. Financial Organization

Separating security deposits and other cash in an interest-bearing escrow account guarantees that money is not inadvertently mixed with business or personal funds.

4. Improved Portfolio Management

Tracking escrow balances and their accrued interest helps property managers better understand the total financial picture, especially across multiple properties.

Factors Affecting Escrow Interest Rates in 2025

Macroeconomic events and government monetary policy affect escrow account interest rates. Early 2025 marks the cautious approach the U.S. Federal Reserve has taken to inflation, progressively changing base interest rates that flow down to escrow products and savings.

Here are the key factors influencing escrow interest rates this year:

1. Federal Reserve Policy

Changes in the federal funds rate directly impact the interest banks are willing to offer on deposit accounts.

2. Banking Institution Policies

Some institutions offer tiered or promotional rates, while others offer flat, minimal interest. It’s important to compare options.

3. Account Type

Interest-bearing savings or money market escrow accounts typically earn more interest than basic checking-style escrow accounts.

4. Duration of Funds Held

Longer-held deposits accrue more interest, making rate differences more noticeable over time.

How Baselane Aligns with Escrow Management Trends

Although escrow accounts are typically associated with banks, new platforms are emerging that blend banking functionality with rental-specific needs. Baselane is one such platform that integrates financial tools designed for landlords, including escrow-style account management — though not presented under traditional escrow branding.

Streamlined Account Creation

Baselane allows landlords to create multiple accounts under one dashboard, each associated with a different property. This arrangement separates security deposits and rent from general operational cash, therefore simulating the structure of escrow funds and ensuring appropriate use of the money.

Transparent Financial Reporting

By offering real-time transaction records, Baselane makes it easy to track when deposits were made, when rent was received, and how much interest is accruing on funds held. While not marketed as a traditional escrow service, the platform supports similar transparency standards.

Interest-Bearing Options

Baselane provides access to FDIC-insured accounts with competitive APYs that align with or exceed many traditional bank escrow rates. This enables landlords to fulfill legal obligations regarding interest on deposits without needing to open a separate escrow-specific account elsewhere.

Automation and Compliance Support

With automated payment tracking, fund labeling, and customizable notifications, Baselane helps landlords stay on top of compliance — especially in states that require interest disclosures and timely return of tenant deposits.

Tips for Managing Escrow Interest Accounts Effectively

Whether you're using a bank or a modern platform like Baselane, here are some best practices for managing escrow accounts in 2025:

1. Understand Local Laws

Review your city and state regulations regarding escrow and interest on security deposits. Make sure your account complies with all legal requirements.

2. Use Separate Accounts

Never co-mingle tenant funds with operational money. Create dedicated accounts for each property if necessary.

3. Disclose Interest to Tenants

Provide annual or end-of-lease summaries showing how much interest was earned and how it was applied or returned.

4. Choose Competitive Rates

While escrow interest is often modest, every bit helps. Look for platforms or institutions offering above-average APYs.

5. Keep Detailed Records

Document all transactions related to escrow funds, including deposits, deductions, and interest earned. These records may be required in disputes or audits.

Final Thoughts

Understanding escrow interest rates will be not only a legal requirement for landlords and property managers in 2025 but also a best practice for operational efficiency and financial openness. Tenant rights are growing, and digital technologies are changing. Hence, our approach to escrow is also changing. 

By providing property-oriented financial tools that simplify escrow-type processes and also provide competitive interest rates, automated compliance, and transparent reporting, sites like Baselane are satisfying these needs. 

Landlords who properly handle escrow money and who know the subtleties of interest accrual will be more suited for long-term success as the rental scene gets more regulated and renters demand more financial openness.