Is it absolutely necessary to put a tenant's security deposit into an escrow account?

As another answerer has mentioned, this is a legal requirement in some states. The first thing to do with any landlord-tenant question is to see if there are state laws on the topic, since the penalties for breaking them can be harsh as a landlord.

In any case, it is a responsible business practice to keep the tenants' money separate from your own money. If you prefer to put cash in a safe instead of depositing a check into an escrow account, that's fine too (assuming it is legally permitted), but when at the end of the tenancy you must be certain you will have immediate access to the tenant's funds in precisely the right amount. Escrow accounts make this easier.

Note that in many states, you don't have to give (all of) the interest the deposit earns to the tenant, or often only after a certain number of years. This means you could be losing out on money if you choose not to use an account.

Only some states require that. You have to look up your state's landlord-tenants law.

Depends on state laws. Many states require a landlord to do this.

Only if state law requires it, some do, some do not.

no....what is escrow? money to be paid back....you can keep it in your personel savings account....you can keep it in your back pocket...you can be an ******** and blow it at the track