Watsonville, California: security deposit interest
Watsonville requires landlords to pay yearly interest on security deposits over $50, but only when the rate the City Council adopts reaches one-half of one percent — and it has not since 2010.
Cited to Watsonville Muni. Code § 5-40.01 (definitions; the tenant's interest, the $50 threshold and the Council rate) and 4 more sources · Verified August 28, 2026
The duty itself is real and detailed: chapter 5-40 is a free-standing ordinance, not part of any rent control scheme, and it fixes an annual rate, a January 1 payment deadline, a three-week payout when the tenancy ends, a notice the landlord must give the tenant, and a $200 statutory damages remedy. What switches it off is § 5-40.04(d), which makes payment optional for the landlord whenever the adopted rate falls below one-half of one percent. Every published rate from 2011 through 2024 was below that line, and each of those years the city issued a notice saying interest was waived. The city has published no rate at all for 2025 or 2026.
Watsonville deposit interest at a glance
| Interest owed under local law | Conditional — owed only in the circumstances on this page |
|---|---|
| How the rate is set | A figure announced on a published cycle |
| Current figure | No rate has been published for 2025 or 2026. The last year Watsonville published a figure high enough to require payment was 2010, at 0.10%; every published rate from 2011 through 2024 fell below the one-half of one percent level at which the ordinance makes payment optional for the landlord. |
The rate
Section 5-40.01(b) defines the "tenant's interest" as simple interest per year on all security deposits over $50, at a minimum rate set from time to time by City Council resolution. The codified mechanism is a city survey: the Administrative Services Director contacts at least three major banking or savings and loan institutions in November of each year to find the average rate then paid on savings passbook accounts, averages them into a recommended rate, and sends it through the City Manager to the Council, which adopts a resolution on or before its last meeting of the calendar year setting the rate for the following year. The Council's rate is a floor, not a ceiling: a lease may promise a higher rate but may never provide for less, and where the lease is silent the Council's rate applies by force of the ordinance. Section 5-40.04(d), added in 2010, is what makes the duty conditional — "It shall be optional for landlord to pay their tenant(s) interest on security deposits held when the average interest rate is less than one-half (0.5%) percent." The city's own notices read that as meaning interest payments are not required for the year in question.
Accrual and payment
Interest runs from June 1, 1991 or from the day the landlord actually receives the deposit, whichever is later. For a continuing tenancy the landlord must pay the previous calendar year's interest without any demand from the tenant, no later than January 1, either as a payment or as a credit against rent — the landlord chooses which. When the tenancy ends the tenant is entitled to a direct payment of the interest no later than three weeks after vacating, and at that point the rent-credit option is gone. If a landlord misses the January 1 deadline, § 5-40.04(c) changes the arithmetic: interest then accrues daily on the deposit plus any earlier interest that was never paid or credited.
Who and what is covered
Two conditions carry the duty: the deposit must exceed $50, and the tenancy must be one governed by California Civil Code § 1950.5 — a written or oral rental agreement for property used as the tenant's dwelling for thirty days or more, which is what keeps transient stays out. Three exemptions follow in § 5-40.02: tenancies where the rent is assisted or subsidized by a government body, but only to the extent that body's rules conflict with the chapter; units where a landlord is required by law to hold deposits in accounts that do not bear interest; and public housing owned by the Santa Cruz County Housing Authority. The chapter is free-standing rather than tied to rent regulation — Watsonville has no general rent control, and its mobile home park rent chapter contains no deposit provision of any kind.
Custody of the deposit
There is no separate-account, escrow, or trust duty. Section 5-40.05 says plainly that nothing in the chapter prevents a landlord from exercising discretion in investing security deposits, so the landlord chooses where the money sits and keeps whatever it earns above the Council's rate. What the ordinance regulates is the payment owed to the tenant, not the custody of the deposit.
Penalty for violation
A landlord who does not comply owes statutory damages of up to $200, plus actual damages with no cap — but only where the tenant first asked the landlord in writing to comply and the failure continued after that request (§ 5-40.08). So a tenant's first step is a written request, not a lawsuit. The chapter adds no attorney-fee award and no multiplier of its own, and § 5-40.09 makes any waiver of the chapter's rights void as contrary to public policy. Separately, the landlord's notice to the tenant must warn of liability under Civil Code § 1950.5 for the bad-faith retention of a deposit, which is a state remedy sitting alongside this one.
How this interacts with state law
California Civil Code § 1950.5 requires no interest on a security deposit and does not stop a city from requiring it, and Watsonville is one of the cities that has. The local chapter borrows the state statute's coverage test — a dwelling rented for thirty days or more — and leaves the deposit's return to state law, adding only the interest duty on top. Watch the two clocks at the end of a tenancy: the state statute's twenty-one days to return the deposit and the ordinance's three weeks to pay the interest are close but separate deadlines, and the local one must be met with a payment rather than a rent credit.
Mobile home parks
Watsonville's mobile home park rent stabilization chapter contains no deposit provision at all, and chapter 5-40's coverage runs through Civil Code § 1950.5, which does not govern mobile home park space rents. Park space tenancies in Watsonville therefore fall outside the local interest duty.
Published rate tables
Watsonville tenant's interest rates on residential security deposits
One figure per calendar year, adopted by City Council resolution and applied as simple interest to the deposit held during that year. From 2011 on, a year whose adopted rate falls below one-half of one percent carries no figure here: the ordinance makes payment optional in such a year and the city's notices state that interest is not required.
| Period | Rate | Note |
|---|---|---|
| calendar year 1991 | 5% | |
| calendar year 1992 | 5% | |
| calendar year 1993 | 3% | |
| calendar year 1994 | 3% | |
| calendar year 1995 | 4.75% | |
| calendar year 1996 | 5% | |
| calendar year 1997 | 1.9% | |
| calendar year 1998 | 1.9% | |
| calendar year 1999 | 2% | |
| calendar year 2000 | 2% | |
| calendar year 2001 | 2% | |
| calendar year 2002 | 1% | |
| calendar year 2003 | 0.58% | |
| calendar year 2004 | 0.32% | |
| calendar year 2005 | 0.32% | |
| calendar year 2006 | 0.43% | |
| calendar year 2007 | 0.34% | |
| calendar year 2008 | 0.31% | |
| calendar year 2009 | 0.23% | |
| calendar year 2010 | 0.1% | The city's undated historical rate sheet prints this year as 10.00%. Four separate city notice letters, for 2013, 2014, 2015 and 2016, print 0.10%, and 0.10% is the figure to use — a ten percent passbook average in 2010 is not a real number. This is the last year Watsonville's rate reached the level at which payment is required. |
| calendar years 2011 through 2024 | Waived — no payment owed | Waived every year. In each of these fourteen years the adopted rate came in below one-half of one percent, so § 5-40.04(d) made payment optional for the landlord, and each of the city's published notices for these years is headed "waived" for the year in question. |
| calendar year 2025 | No official figure published | Not published. The most recent notice the city has published is the one for 2024, and its program page and document archive carry nothing for 2025. |
| calendar year 2026 | No official figure published | Not published. As of August 28, 2026 the city had published no 2026 notice or resolution, and the county figure the city usually tracks is not a Watsonville rate. |
A current series — the City Council, by resolution adopted on or before its last meeting of the calendar year; the city's notices state its rate is aligned with the rate the County of Santa Cruz adopts each December. Source: official source · verified August 28, 2026.
Work out a figure: the deposit interest calculator computes Watsonville interest from this table using the locality's own published method.
Notes and caveats
- Fourteen straight years with nothing owed — The practical answer in Watsonville has been the same since 2011: no interest was required. Each year from 2011 through 2024 the adopted rate came in below one-half of one percent, which triggers § 5-40.04(d) and makes payment optional, and the city published a notice headed "waived" for the year. A landlord who paid nothing in those years complied with the ordinance. The duty is dormant rather than repealed, and a rate at or above one-half of one percent in some future year would switch it back on.
- No rate published for 2025 or 2026 — The newest notice on the city's program page is the one for 2024. Nothing has been published for 2025 or 2026, and neither the program page nor the city's document archive carries a notice or resolution for either year. The city's notices say its rate "is aligned with the rate calculated and adopted by the County of Santa Cruz," and the county adopted 0.01% for 2025 and 0.02% for 2026 — but those are county figures for the unincorporated county, not Watsonville rates, and the two jurisdictions have separate ordinances. Anyone who needs a Watsonville figure for those years should ask the city's Finance Department.
- The 2010 rate is 0.10 percent, not 10 percent — The city's historical rate sheet prints the 2010 rate as "10.00%". Four separate city notice letters print 0.10%, and that is the correct figure — the rate is an average of bank passbook savings rates, which were nowhere near ten percent in 2010. The misprint is a live trap for anyone copying the sheet, because it would inflate a 2010 calculation a hundredfold.
- What actually triggers the duty — Two things: the deposit must be more than $50, and the tenancy must be one Civil Code § 1950.5 governs, meaning a dwelling rented for thirty days or more. The city's own notice letters describe the rule as reaching deposits "held for more than thirty (30) days," which is not what the ordinance says — the thirty days is about the length of the tenancy, the element that excludes hotel-style stays, and not about how long the landlord has been sitting on the money. A deposit over $50 on a covered tenancy is inside the ordinance from the day it is received.
- The code describes a city survey; the notices describe the county's rate — Section 5-40.01(b) sets out a Watsonville survey — the Administrative Services Director polls at least three banks or savings and loan institutions each November on savings passbook rates and averages them, and the Council adopts the result by resolution before its last meeting of the year. Since at least 2013 the city's notices have instead said its rate is aligned with the County of Santa Cruz's, whose own survey polls six banks. Both routes arrive at a number, but the rate that governs in Watsonville is the one the City Council adopts by resolution.
- Notice to the tenant, in Spanish where that is the tenant's language — Section 5-40.06 requires the landlord to post a notice in a conspicuous place on the premises, or hand the tenant a written one when the lease is signed. It must tell the tenant about the right to receive interest each year, state the rate, and warn of the landlord's exposure to statutory damages under the chapter and under Civil Code § 1950.5 for the bad-faith retention of a deposit. If the tenant's primary language is Spanish, the notice must be in Spanish.
- Accrued interest is not untouchable — Under § 5-40.07, if verifiable repair costs at the end of a tenancy exceed the deposit itself, the landlord may draw on the tenant's accrued interest to make up the difference — but only after complying with Civil Code § 1950.5, and only by giving the tenant an accounting of the interest used.
Cite this page: "Landlord Atlas, Watsonville, California: security deposit interest (verified August 28, 2026), landlordatlas.com/laws/deposit-interest/california/watsonville/" — free to cite and quote with a link (how these records are verified).
Citations
- Watsonville Muni. Code § 5-40.01 (definitions; the tenant's interest, the $50 threshold and the Council rate) · (b) (verified 2026) Official source
- Watsonville Muni. Code § 5-40.02 (application of the chapter; exemptions) (verified 2026) Official source
- Watsonville Muni. Code § 5-40.04 (payment; the one-half of one percent waiver) · (d) (verified 2026) Official source
- Watsonville Muni. Code § 5-40.08 (remedies) (verified 2026) Official source
- City of Watsonville, Rental Security Deposit program page (annual rate notices and the historical rate sheet) (verified 2026) Official source
How this record was verified: Complete read of Watsonville Municipal Code Title 5, chapter 40 (Security Deposits for Residential Rental Property), sections 5-40.01 through 5-40.09 with the chapter history footnote, on the city's official code site, current through Ordinance 1491-26 passed July 7, 2026; the city Finance Department's annual rate notices for 2013, 2014, 2015, 2016, 2023 and 2024 and its historical rate sheet read in full, and the city's document archive and site search examined for any 2025 or 2026 notice; the city's mobile home park rent stabilization chapter (Title 11, chapter 3) read in full with every occurrence of 'deposit' and 'interest' in it placed in context, and the code's title and chapter indexes examined for any other deposit provision; and the County of Santa Cruz rate resolutions for 2025 and 2026 and its prior-years rate sheet read, because the city's notices describe its rate as aligned with the county's.
This page records local law on deposit interest. The statewide position — California's security-deposit statute says nothing about interest — no part of Civil Code § 1950.5 requires a landlord to pay or credit a tenant any interest on a residential deposit. — lives on the California deposit-interest page with its own citations and verification date.