Do escrow accounts earn interest? For most homeowners, no. Federal law caps how much your mortgage servicer can hold in escrow but says nothing about paying you for holding it. Only 13 states require lenders to credit interest on escrow balances, and the mandated rates are low. Everywhere else, that money sits with your servicer at no cost to the lender and no return to you.
Why Most Escrow Balances Pay Nothing
The federal statute governing mortgage escrow, 12 U.S.C. Section 2609, focuses on limiting deposits and requiring annual statements. It contains no provision requiring servicers to pay interest on the funds they hold.1Office of the Law Revision Counsel. 12 USC 2609 – Limitation on Requirement of Advance Deposits in Escrow Accounts Regulation X, which implements the Real Estate Settlement Procedures Act, addresses how servicers compute balances, handle surpluses, and conduct annual analyses. It also never mentions interest.2Consumer Financial Protection Bureau. 12 CFR 1024.17 – Escrow Accounts
Congress left the interest question to the states. Where a state hasn’t acted, your servicer has no duty to pay you anything on the balance. The servicer holds those funds in its own accounts and keeps whatever return they generate.
The balance is not trivial. Under RESPA, a servicer can collect one-twelfth of the annual tax and insurance bills each month, plus a cushion of up to two months’ worth of payments.3Consumer Financial Protection Bureau. Is There a Limit on How Much My Mortgage Lender Can Make Me Pay Into an Escrow Account That cushion means your account carries a meaningful balance year-round.
The 13 States That Require Interest on Escrow
Thirteen states require lenders to pay interest on mortgage escrow accounts: California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Oregon, Rhode Island, Utah, Vermont, and Wisconsin.4Office of the Comptroller of the Currency. Real Estate Lending Escrow Accounts If your property sits in one of these states, your servicer must either credit interest to the escrow balance or pay it to you directly.
The mandated rates are modest. California requires at least 2% simple interest per year on escrow for properties with one to four residential units. New York sets the same 2% floor for properties with one to six units, though the state’s superintendent of financial services can prescribe a higher rate.
The dollar amounts follow from the rate. On an escrow account that averages a $3,000 balance, 2% produces about $60 a year. Servicers usually credit the interest annually, which slightly reduces your monthly payment or offsets a shortage. Some send an annual check instead.
Outside these 13 states, a servicer can voluntarily pay interest, but it almost never happens. There is no incentive to share returns on money held at no cost.
The National Bank Preemption Problem
Even in a state with an interest-on-escrow law, whether your lender has to comply may depend on its charter. National banks have long argued that the National Bank Act preempts these state requirements, and the question reached the Supreme Court in 2024.
In Cantero v. Bank of America, the Court addressed whether the National Bank Act preempts New York’s interest-on-escrow law. It did not resolve the question. It held that lower courts had used the wrong test and sent the case back with instructions to apply a “practical assessment of the nature and degree of the interference” that a state law causes to a national bank’s powers.5Supreme Court of the United States. Cantero v. Bank of America, N.A. (2024) Under that standard, a state law is preempted only if it “prevents or significantly interferes” with the bank’s federally granted powers.
Before the lower courts finished that analysis, the Office of the Comptroller of the Currency moved to settle the question by rule. In December 2025, the OCC published two proposed rules that would declare all 13 state interest-on-escrow laws preempted as applied to national banks.6Office of the Comptroller of the Currency. Preemption Determination on State Interest-on-Escrow Laws The OCC characterized the state laws as an “unnecessary burden” on national banks. As of early 2026, these rules remain proposals in the comment period, not final regulations.
What it means for you: if your loan is serviced by a nationally chartered bank, the preemption question is unresolved and you may or may not receive interest even in one of the 13 states. If your servicer is a state-chartered bank or a credit union, the state law applies without question. The OCC and FDIC both maintain bank search tools that show a servicer’s charter type.
A Note on Closing Escrow
The word “escrow” also describes the short-term account used during a home purchase, held by a title company or escrow agent to keep the earnest money and closing funds until the deal closes. That account is a different arrangement from your mortgage escrow, and the interest question works differently too.
Closing escrow typically lasts 30 to 60 days, and the funds usually sit in a non-interest-bearing trust account. For small deposits, escrow agents often use pooled trust accounts where any interest generated goes to state legal aid programs. If the earnest money is large or the closing drags out, the buyer and seller can agree in the purchase contract to place the funds in a separate interest-bearing account. Any interest earned generally belongs to the buyer and is taxable, unless the contract allocates it differently.
What You Can Do If Your Escrow Earns Nothing
If you’d rather hold the tax and insurance money yourself and earn a return on it, an escrow waiver is possible on some loan types but not all.
Conventional Loans
Most conventional lenders allow escrow waivers if your loan-to-value ratio is 80% or below. You usually need a clean payment history with no delinquencies in the past 12 months, no prior loan modifications, and the loan must be at least a year old. Fannie Mae and Freddie Mac charge a one-time fee of roughly 0.25% of the loan amount for the waiver. On a $300,000 mortgage, that’s about $750.
Once escrow is waived, you take full responsibility for paying property taxes and insurance premiums on time. Miss a tax payment and you face a lien on the home. Let insurance lapse and the servicer will force-place a more expensive policy at your cost.
Government-Backed Loans
FHA loans require escrow for the life of the loan, with no option to waive.7FHA Resource Center. Who May a Consumer Contact With Questions About Their Existing Escrow Account on an FHA-Insured Mortgage VA loans do not impose an absolute escrow requirement, and some VA borrowers can negotiate a waiver with their servicer, though individual lender policies vary.
If You Do Earn Interest, It’s Taxable
Interest credited to a mortgage escrow account is taxable income. If the total interest for the year exceeds $10, the servicer must report it to you and the IRS on Form 1099-INT.8Internal Revenue Service. About Form 1099-INT, Interest Income Below $10, no form goes out, but the income is still reportable. At the rates the 13 states mandate, the tax bill on escrow interest is small, but it belongs on your return.