Version 8 of the Handbook was published on 1 October 2013. For more information, please click "History" above.
The interest paid must be a fair and reasonable sum calculated over the whole period for which the money is held.
You will usually account to the client for interest at the conclusion of the client's matter, but might in some cases consider it appropriate to account to the client at intervals throughout.
The sum paid by way of interest need not necessarily reflect the highest rate of interest obtainable but it is unlikely to be appropriate to look only at the lowest rate of interest obtainable. A firm's policy on the calculation of interest will need to take into account factors such as:
the amount held;
the length of time for which cleared funds were held;
the need for instant access to the funds;
the rate of interest payable on the amount held in an instant access account at the bank or building society where the client account is kept;
the practice of the bank or building society where the client account is kept in relation to how often interest is compounded.
A firm needs to have regard to the effect of the overall banking arrangements negotiated between it and the bank, on interest rates payable on individual balances. A fair sum of interest is unlikely to be achieved by applying interest rates which are set at an artificially low level to reflect, for example, more favourable terms in relation to the firm's office account.
A firm might decide to apply a fixed rate of interest by reference, for example, to the base rate. In setting that rate, the firm would need to consider (and regularly review) the level of interest it actually receives on its client accounts, but also take into account its overall banking arrangements so far as they affect the rates received.
When looking at the period over which interest must be calculated, it will usually be unnecessary to check on actual clearance dates. When money is received by cheque and paid out by cheque, the normal clearance periods will usually cancel each other out, so that it will be satisfactory to look at the period between the dates when the incoming cheque is banked and the outgoing cheque is drawn.
Different considerations apply when payments in and out are not both made by cheque. So, for example, the relevant periods would normally be:
from the date when you receive incoming money in cash until the date when the outgoing cheque is sent;
from the date when an incoming telegraphic transfer begins to earn interest until the date when the outgoing cheque is sent;
from the date when an incoming cheque or banker's draft is or would normally be cleared until the date when the outgoing telegraphic transfer is made or banker's draft is obtained.
Rule 13.8 requires that money held in a client account must be immediately available, even at the sacrifice of interest, unless the client otherwise instructs, or the circumstances clearly indicate otherwise. The need for access can be taken into account in assessing the appropriate rate for calculating interest to be paid.
For failure to pay a sufficient sum by way of interest, see guidance note (vi)(a) to rule 22.