@Charlie Moore
You don't have to worry about your tenants asking you.
When the hammer comes down on you in PA for not keeping the money in that account, it's going to be during small claims litigation with a tenant. The magistrate is going to ask you to document what bank the money is in and when the account was established. If you cannot produce that paperwork because the money is actually in your possession or sitting in your accounts or in a safe, that's when you'll wish you had established that account. But that's not the best clear and obvious reason to follow the law here. You can use the escrow account situation to your advantage in multiple ways. Here's my main one:
I have an escrow account for every tenant. I set up the account, put the money in it and mail a copy of the deposit documentation to the tenant (for their records). I know that for most if not all it's the first time they've ever seen that. The documentation is one of the ways I emphasize the quality of what I am providing is better versus what they could get elsewhere. If I renew the lease, I print out a new bank statement from the escrow account and send the tenant the new paperwork and a copy of the statement.
This way, every year, the tenant gets a reminder that tells them: "Your security deposit is still there and its yours and I'm not making money off it."
Every single tenant in America complains to their friends and coworkers about their landlord. That's human nature Every single tenant in America begrudges every penny of their security deposit. That's also human nature. You should be sensitive to these facts of life. Machiavelli put it best: "But above all things [the Prince] must keep his hands off the property of others, because men more quickly forget the death of their father than the loss of their inheritance."
If my tenants believe for any reason that I'm profiting off this money or the interest of this money in any way, that's a bad mark against me in the landlord-tenant relationship. That's the main reason I do what I do and show the evidence of it. If my tenants talk about this to other tenants and these people express approval that their landlord is honest, that's a good mark for me, and my tenants have feedback from third parties that they're getting value for money out of living in one of my properties.
You're running a business. You're marketing a service to your clients. You're trying to differentiate what you provide from what others provide. Something like this is a golden opportunity to do it. Ray Kroc built a whole empire out of realizing he could sell cheap crappy hamburgers as long as the johns in his hamburger joints were cleaner than the next guy's.
