New research shows that higher interest rates are reshaping how firms define fair client returns
A prolonged period of historically low interest rates shaped how law firms in England and Wales approached interest earned on general client accounts. That environment has now shifted, and new research suggests firms are reassessing what constitutes a fair sum to return to clients.
Independent research commissioned by the Ministry of Justice and conducted by Pye Tait Consulting shows that the Bank of England base rate rose from 0.1 percent in December 2021 to 5.25 percent by spring 2024. The increase marks a significant departure from the low rate conditions that prevailed for more than a decade and has altered the financial context in which client money is held.
The research indicates that this change is influencing firm behaviour. When surveyed, law firms reported that the mean proportion of interest they currently consider fair to return to clients is 38 percent. This represents an increase compared with three years earlier, when interest rates were substantially lower and interest generation was often minimal.
The findings also point to a notable shift at the upper end of the scale. One third of firms now say that returning at least 80 percent of accrued interest is fair. This reflects a measurable change in expectations across the sector and suggests that higher interest rates are prompting closer scrutiny of existing policies.
Despite this movement, approaches remain far from uniform. The research records a wide range of interpretations of what constitutes a fair sum, with firms reporting figures spanning from zero percent to the full return of interest. This variation persists even though firms commonly cite the same reference points when setting policy.
Solicitors Regulation Authority guidance and prevailing market interest rates were identified as the two most significant influences on decision-making. Firms reported weighing regulatory expectations alongside economic conditions when determining how much interest should be paid back to clients.
The report does not seek to define or recommend a specific fair sum. Instead, it documents how firms are responding to changing economic circumstances within the existing regulatory framework. The findings suggest that rising interest rates are reintroducing issues that were largely dormant during the low rate era, including questions of proportionality, consistency and transparency.
As interest rates remain elevated relative to recent history, the research highlights a central question facing firms. Policies developed at a time when interest was negligible may no longer align comfortably with current financial conditions or evolving expectations. The study suggests that firms are increasingly being prompted to review whether their existing approaches remain defensible in the present environment.