How should a property manager handle security deposits?

A property manager should deposit security deposits in a federally insured financial institution to ensure the funds are secure and protected. This practice aligns with the legal requirements governing the handling of security deposits in many jurisdictions, including South Dakota. By using a federally insured bank, the property manager guarantees that the funds are safeguarded from loss or theft, while also protecting the tenant's investment.

Using a financial institution rather than keeping the funds in cash or investing them personally demonstrates professionalism and accountability. It provides a clear record of the deposits, which is essential for transparency during the return process when tenants vacate the property. This action also helps ensure compliance with state laws regarding interest-bearing accounts and the appropriate handling of tenants' deposits, as many states mandate that security deposits must be kept in separate accounts and may require any interest earned to be returned to the tenants.