Financial Ombudsman Service announces change to compensation interest levels

• We are changing the interest we apply to some of the awards we direct financial businesses to make. 
• Acting on feedback from our consultation, we are revising the rate to better reflect market conditions.
• The new rate will track the Bank of England’s base (average) rate +1 %.

Following a consultation earlier this summer, the interest applied to some awards we direct financial service firms to make is being revised to track the Bank of England’s base (average) rate +1%. This will be calculated as a weighted average over a period from when the money was due (i.e. when the loss to the consumer occurred) until the date the redress payment is made. Awards will still reflect any actual losses the consumer has suffered, as now.

We have consulted on a range of interest options after feedback from our joint Call for Input with the Financial Conduct Authority (FCA) suggested the rate should be reviewed. The previous rate of 8% had remained unchanged for nearly 25 years despite significant shifts in the economic landscape and interest rate environment.

If a consumer is found to have lost out because of a firm’s errors, we can order the business to pay compensation, plus interest. We aim to put the consumer back in the position they would have been in if their financial firm hadn’t got things wrong.

There are different types of interest businesses can be directed to pay, and one of these compensates consumers for being “deprived” of money – that is, not having it available to use – such as where an insurance claim has been wrongly turned down. This is in addition to the compensation for the actual money lost. Acting on feedback from stakeholders, this rate will change to track the Bank of England’s base (average) rate +1% to better reflect actual economic conditions and the cost to consumers. The move aims to strike a balance between simplicity, fairness and proportionality.

We can also direct a business to pay 8% interest if it doesn’t pay compensation on time. Responding to feedback from the consultation about the need to ensure firms do not delay payment, this rate will remain in place. 

We are aiming to introduce this change from 1 January 2026 for new complaints referred to us from that date, but will confirm plans for implementation in due course. Further details will be published in the autumn, alongside wider proposals to modernise the redress system.

Notes to Editors

Please refer to the policy statement for further details.

+1% refers to one additional percentage point.