Only two years ago, we were facing the prospect of negative interest rates, having sat an all time low of 0.1%.
Fast forward and they are forecast to rise to 6% and beyond next year.
What does that mean for your Client Account Interest policy? With rates having not moved for a fair while, you probably haven’t had to give them much thought. Well now may be the time to think about them…
It is a requirement to have a Client Interest Policy and to pay a fair and reasonable amount of interest to clients.
Where you name the current Bank of England Interest Rate in your policy, terms of engagement or website, these will need to be adjusted.
Do you pay a % related to the Bank of England Interest Rate or calculate the rate based on the rate your firm receives from your bank? Do you know what rate of Interest your firm receives from your bank?
If you have a de minimis level set, is this appropriate and reviewed in the event of a rate rise? If your policy states that interest will only be paid if over a £20 de minimis level, this may be more likely will interest rates rising.
With rising rates, your policy may need to be updated or tweaked to decide what is fair and reasonable.
Do you have a robust process in place to calculate interest on money held in your Client Account?
Is your Practice Management System (PMS) capable of calculating interest on matters? If it is, how does the interest calculation work? Do you need to begin loading rates and dates into the PMS?
If your PMS isn’t capable, do you have an interest calculation spreadsheet?
Startup legal practices in the last few years will not have had to consider how to calculate or apply interest to Client Monies; it is important to begin exploring how this will be calculated and applied in practical terms.
- Take a look at your Client Account Interest Policy – If you don’t have one, you should have a basis defined for calculating Client Interest…
- Review your policy – Is it fair and reasonable?
- Work out how you will calculate and apply interest to matters
If you need help reviewing your policy or considering how a rise in Interest Rates may affect interest earned on Client Account, contact Ascentant Accountancy to discuss further on firstname.lastname@example.org or 01332 981920. Ascentant are specialist Outsourced Legal Cashiers and able to advise on compliance with the Solicitors Accounts Rules.