Interest on client money: what "a fair sum" means under SRA Accounts Rule 7, worked on four real balances

Rule 7.1 of the SRA Accounts Rules says: "You account to clients or third parties for a fair sum of interest on any client money held by you on their behalf." It gives no percentage, no minimum and no formula. What a firm does with that sentence is its own decision, and at a Bank Rate of 3.75% the sums on a conveyancing deposit are large enough to notice.

What the rule does and does not say

Rule 7.2 gives the one route out: "You may by a written agreement come to a different arrangement with the client or the third party for whom the money is held as to the payment of interest, but you must provide sufficient information to enable them to give informed consent."

So there are two lawful positions:

1. Pay a fair sum of interest on client money.
2. Agree something different in writing, after telling the client enough for their consent to be informed.

The SRA's rules do not tell you what "fair" is, so the sensible reading is that you need a method you can explain, write down and apply the same way each time. A client who asks "why did I get £14 on my deposit?" should get an answer from a document, not from whoever is on the phone.

Four balances at Bank Rate

The Bank of England's Bank Rate was 3.75% at its 17 September 2026 decision, and the next decision is due on 5 November 2026. Your own client account will pay less than Bank Rate, perhaps nothing, so treat Bank Rate as a benchmark for what the money could have earned rather than what you received. The formula is simple interest: amount x 3.75% x days / 365.

Two things stand out. Time matters as much as size: £25,000 for 28 days earns exactly what £50,000 does for 14. And short, large balances are where the money is. The £250,000 held for three days earns more than the £50,000 held for a fortnight, which is the position many conveyancing firms are in every week when funds arrive before completion day.

A cut-off in pound-days

Most firms do not pay interest on every balance, because the interest on a £1,000 deposit held for a week is under £1. A common approach is a minimum amount. If you choose £20 as the figure below which you do not pay (the figure is an example, and the choice is the firm's), you can express it as a number that does not change with the size of the balance:

£20 / (3.75% / 365) = about 194,667 pound-days.

A pound-day is £1 held for one day. Multiply the balance by the number of days and compare. Examples:

The point of this table is the last row. A firm that sets "no interest under 14 days" as a flat rule would pay nothing on £250,000 held for 13 days, which is £333.90 at Bank Rate. A cut-off in money, not time, would catch it. Whichever you choose, the SRA's test is whether the sum is fair, and a rule you can show was chosen with the large balances in mind is easier to defend than one that was not.

Scale for the whole firm

Suppose a small firm holds an average of £400,000 of client money across the year. At 3.75% that is £15,000 a year in interest if all of it earned Bank Rate. If the bank pays the firm 1.00% on the account, £4,000 comes in and £11,000 is the gap between the two. The gap is where "fair" is decided: some firms pass on interest at the account's rate, some at a benchmark, some pay above a cut-off only. All of this is arithmetic you can run on your own ledger, and the answer should appear in the firm's accounts file. (The 1.00% is an example. Use what your bank pays.)

This also links to where the money is held. A firm that holds client money without legal work has to account to the client for it just as it does on a live matter, and what is left unclaimed is dealt with in residual client balances and the £500 rule.

A one-page interest policy

The rule points towards a written position, so write one. It should say:

• Method. How the firm works out a fair sum (account rate, Bank Rate or another benchmark, and why).
• Cut-off. The pound-day or amount below which interest is not paid, and the reason for choosing it.
• Different arrangement. Whether the firm ever agrees something else under rule 7.2, and the wording the client is shown so their consent is informed.
• Who calculates. Who runs the calculation at the end of a matter and who checks it.
• Review. A date to revisit the policy, for example after each Bank Rate decision. The next is 5 November 2026.

Put the policy in the client care documents you already send. If you use a standard letter for new matters, one paragraph on interest costs nothing and means a client has been told before the first deposit arrives.

Who checks it

Rule 7 is part of the Accounts Rules, so the person who should know whether the firm's method is being followed is the COFA. The question for the next accountant's report is whether any matter closed in the year without the interest calculation on the file.

Overlyft builds AI staff for law firms, and an interest calculation is one of the smaller jobs it sets up: on closing a matter, the assistant reads the ledger, works out the interest under the firm's own policy, drafts the line for the completion statement and puts the working in front of the fee earner to approve. A person signs off every figure. This is general information about the published rules, not legal advice.