How to Calculate Interest on a Last Month's Rent Deposit in Ontario

Last month's rent deposit interest in Ontario is owed by the landlord every year, at the rent increase guideline rate in effect when that year's payment falls due. Multiply the deposit by that rate. The guideline is 2.1% for 2026 and 1.9% for 2027, so a deposit of 1,000 dollars earns 21 dollars when the payment falls due in 2026 and 19 dollars when it falls due in 2027.

What is interest on a last month's rent deposit?

A rent deposit is money a landlord collects at the start of a tenancy to cover the last month's rent. The LTB's guide says it cannot be more than one month's rent, or one week's rent where rent is paid weekly. It can only be used as the rent payment for the last month or week before the tenant moves out, and not for anything else, such as repairing damage. Ontario's standard lease guide makes the same point: a rent deposit cannot be used as a damage deposit.

While you hold the money, the landlord must pay the tenant interest on it every year. Under the Residential Tenancies Act, the rate is the same as the rent increase guideline. The interest belongs to the tenant, even though the deposit itself stays with the landlord until the last month. For the collection rules and limits, see our guide to last month's rent deposit rules.

Which interest rate applies each year?

The rate is the rent increase guideline, and the year matters. The LTB's instructions for the T1 tenant application say the interest rate equals the guideline rate in effect when the interest payment becomes due. It is not the rate that applied on the day the deposit was collected.

Ontario's rent increase page lists the guideline as 2.1% for 2026 and 1.9% for 2027. The LTB's own example shows the timing. A deposit held from August 1, 2013 earned interest for the 12 months to July 31, 2014, worked out at the 2014 guideline of 0.8%. The next payment, due July 31, 2015, used the 2015 guideline of 1.6%, because it fell due in 2015.

Two habits keep you right. Use the guideline for the calendar year in which the payment falls due. And check the Ontario page each year, because a new guideline is set annually.

How to calculate interest on a last month's rent deposit

Here is the method, step by step.

1. Write down the date the tenant paid the deposit and the amount you hold.
2. Mark each 12-month period from that date. The payment for each period falls due at its end.
3. Find the guideline for the calendar year in which that payment falls due.
4. Multiply the deposit by the rate. For 2.1%, multiply by 0.021.
5. Round to the cent and record the working.

That is all a last month rent deposit interest calculator does. A spreadsheet with one row per tenancy year gives the same answer: deposit in one column, the rate in the next and the interest in the third.

The LTB's worked examples calculate each year's interest as the deposit multiplied by that year's rate. They do not describe adding earlier interest to the deposit. They also do not show a part-year, such as a tenant who leaves after seven months. Ask the LTB's contact centre or a licensed paralegal how to handle that.

Worked example: a deposit held across several years

Say a tenant paid a last month's rent deposit of 1,000 dollars on November 1, 2025. The amount is a round number for the example, not a typical rent.

The same deposit earns different interest in different years because each payment uses the guideline for the year it falls due.

Worked example: deposit interest after a rent increase

The LTB's guide says that when a landlord gives a notice to increase the rent, the landlord can also ask the tenant to increase the rent deposit by the same amount. The deposit can grow with the rent, and so does the amount the interest is worked out on.

Use the same tenant. Rent is 1,000 dollars a month. The landlord raises it by the full 2026 guideline of 2.1%, which is 21 dollars, to 1,021 dollars from November 1, 2026. The landlord asks the tenant to add 21 dollars to the deposit from the same date.

Here the increase starts on the first day of the second period, so each period has one clear deposit amount. If a top-up lands mid-period, the LTB's instructions do not say how to split it. Pick a method you can explain, write it down and confirm it with the LTB or a licensed paralegal if the amount matters.

Remember the rent increase rules themselves. A notice needs at least 90 days' written notice in the proper form, and an increase generally can happen once every 12 months. Our rent increase notice guide covers the form.

How to pay or credit the interest, and what to keep on file

The LTB's instructions say the landlord must pay interest each year. They do not spell out whether that is a cheque, an e-transfer or a credit against rent. Agree the method with the tenant in writing and keep a record.

A good file has the date the deposit was received, the amount, each interest period, the guideline used, the interest and the date it was paid or credited. Give the tenant a short statement each year. A rent ledger per tenancy makes this a one-line entry. D&D Property Management's rent collection administration keeps ledgers and receipts for each tenancy, and the first consultation is free.

If years were missed, work out each one at the guideline for the year it fell due, pay it and note the catch-up in your records. The T1 form lists a landlord not paying the interest on the rent deposit as a reason for a tenant to apply to the LTB, so it is better to fix it before a move-out dispute. Damage is a separate matter, and the deposit cannot cover it.

Rent deposit interest questions landlords ask

What is the interest rate on a last month's rent deposit in Ontario?

It is the rent increase guideline in effect when the interest payment falls due. Ontario's rent increase page lists 2.1% for 2026 and 1.9% for 2027. The LTB's instructions do not use a separate deposit rate, so check the Ontario page for the year your payment falls due.

Does interest on a last month's rent deposit compound?

The LTB's worked examples calculate each year's interest as the deposit multiplied by that year's rate. They do not describe adding past interest to the deposit. If you are unsure how to treat a long tenancy or a mid-year change, ask the LTB or a licensed paralegal rather than guessing.

Can a landlord use the deposit to cover damage?

No. The LTB's guide says a rent deposit can only be used as the rent payment for the last month or week before the tenant moves out, and not for anything else, such as repairing damage. Damage deposits are not allowed in Ontario. A refundable key deposit is allowed.

What if a landlord never paid the interest?

The tenant can apply to the LTB on a T1 application, which lists unpaid interest on the rent deposit as a reason. A landlord who finds missed years should calculate each one at the guideline for the year it fell due, pay it and keep the record. Ask the LTB or a licensed paralegal about your situation.

Devon Moore, Operations Lead Co-Founder & Operations Lead — D&D Property Management

Devon Moore is the co-founder and Operations Lead at D&D Property Management, managing rental properties across Kitchener-Waterloo, Cambridge, Guelph and Waterloo Region.