Calculating interest on awards
This guidance will help you calculate interest payments on a sum, based on the time-weighted average of the Bank of England base rate plus one percentage point.
We may have told you to pay interest on top of – or as part of – a payment to your customer.
The rate of interest for late payment of awards is 8% simple per annum. But for interest awarded to reflect the cost of being deprived of money, in most cases we use the following rates as the default:
- simple interest at the time-weighted average of the Bank of England base rate plus one percentage point, for complaints referred to us since 1 January 2026
- simple interest at 8% per year, for complaints referred to us before 1 January 2026.
Please note, sometimes we may tell you to pay interest at a different rate, for example, if the customer had to borrow money or use money out of an account or investment.
How to calculate interest
Our interest calculator can help you work out what you may need to add to an award, using the Bank of England base rate plus one percentage point. However, your business remains responsible for the accuracy of any payment you make, so we have set out the formula here to help you check the interest you need to add.
The calculation uses a weighted arithmetic mean – that is, weighted average – with time as the weighting factor.
So, the time-weighted average interest rate is calculated for a given period by:
- multiplying each Bank of England base rate during the relevant period by the number of days that the given base rate applied
- adding all those results together, and
- dividing the sum by the total number of days.
This formula results in a more accurate, time-sensitive figure because it:
- reflects the average of interest rates over a period, adjusted for how long each rate was in effect
- gives greater importance to rates that applied for longer durations.
Example of calculating interest
Let’s imagine we have told you to award your customer compensation, with interest, for deprivation of money. The customer was deprived of £1,000 for 100 days – which includes both the start and end date of the period.
You must therefore, calculate the interest to pay:
- on a loss of £1,000
- for a period of 100 days.
Step 1: Check you have the right dates and rates
Make sure you include both the start and end date of the period you are calculating interest for.
If you are 'future-dating' the calculation – that is, working out the interest payable at a future date – use the current base rate for the future period.
If the interest rate rises before you make the payment, you’ll have to take this into account. However, if the rate falls before you make the payment – and therefore the initial calculation of interest is higher – you have the option of sticking with your initial interest calculation.
Check the Bank of England website to get historical Bank of England base rates.
Step 2: Calculate the time-weighted average rate
Let’s assume that during the 100-day period, the following were the Bank of England base rates:
- Day 1-50: base rate 5%
- Day 51-75: base rate 7%
- Day 76-100: base rate 8%
Therefore, the weighted mean is calculated as follows:
(50 x 5%) + (25 x 7% + (25 x 8%) divided by (50 + 25 + 25)
which gives you:
2.50 + 1.75 + 2.00 divided by 100 = 6.25%
At this point and not before, you may round your figure to two decimal places.
Step 3: Add one percentage point
Adding one percentage point to this weighted average rate gives you the rate you need to apply in the calculation:
6.25% plus 1% = 7.25%
Therefore 7.25% is the rate to be applied for interest calculation.
Step 4: Apply the rate to the loss amount
Use 365 days as the denominator:
Interest = £1,000 x 7.25% x 100/365 = £19.86