California's general rule is that the landlord is not required to pay interest on the tenant's security deposit. The return of a residential security deposit is covered by the Cal. Civ. Code, Section 1950.5, and, as the case Korens v. R. W. Zukin Corp., 212 Cal. App. 3d 1054 (1989) indicated, "[a]lthough the subject of security deposits given in connection with the rental of residential properties has been extensively regulated by the legislature, Cal. Civ. Code § 1950.5, no provision of state law imposes the additional requirement that interest be paid on security deposits by landlords."
But, absence of a requirement is not necessarily a prohibition. The San Francisco Administrative Code, Chapter 49, contains the provision mandating the payment on the deposit in residential leases, held for over a year. See, Topic No. 103, issued by the San Francisco Rent Board. See a quote below (my emphasis):
"Chapter 49 of the San Francisco Administrative Code requires landlords to pay interest annually on deposits held on residential property. Landlords are required to pay interest on all monies held over one year, regardless of what the deposit is called. Interest payments apply to all residential rental units in San Francisco, including those exempt from the Rent Ordinance, with one exception: where the rent for the unit is assisted or subsidized by a government agency, the interest payment requirement does not apply."
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