New interest rate now applies to compensation awards

Following a consultation last summer, we announced that the default interest rate – applied to some awards we direct financial service firms to make – is being revised to track the Bank of England’s base (average) rate plus one percentage point.

That change has now come into effect and applies to new cases referred to us on and after 1 January 2026.

The interest is calculated as a weighted average over a period, typically from when the money was due (that is, 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.

We have provided a calculator to help businesses understand how much interest, using the new rate, may be due.

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 that businesses can be directed to pay. 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, we have now changed the default interest rate we tend to use in this situation to track the Bank of England’s base (average) rate plus one percentage point 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% simple interest if it doesn’t pay compensation on time. This rate remains in place.