Should a solicitor pay interest on money held in client account?

[Robert55]

Hi all, I have a question on whether a legal firm should pay interest on funds held in their general/pooled client account? The Solicitor told me that they don't make any interest on their client account therefore there is no interest to pay me for the funds they are holding.

I have never questioned his position on this, however, the other day I came across the following:

• Rule 7.1 of the SRA Accounts Rules requires firms to pay their clients a 'fair' sum of any interest earned on client money.
• The Firm’s Liability: If the firm’s pooled client bank account yields little to no interest, the firm is still obligated to calculate and pay a "fair" amount of interest based on what the client would have earned had their funds been placed in a designated instant-access deposit account.

We are talking about a large amount of money that has been held in the firm's client account for over 4 years (pending resolution of a dispute). Therefore, if a fair amount of interest should be paid, it would be a significant amount.

I checked the paperwork I have with the law firm and in their terms of business it says they pay interest on funds held by their firm.

Based on what I’ve found, I believe this warrants a letter to the solicitor to look into this further. If anyone is knowledgeable in this area or would like to comment, I'd really appreciate this. Thank you.

The idea that a fair amount should be based on instant access deposit account interest rates is from old guidance that has been withdrawn. However, 7.1 still applies. Your solicitor should have a written policy on interest. This should set out the circumstances under which interest will be paid and how it will be calculated. They may, for example, not pay if the amount of interest is below a certain amount, or if money is held to pay for a professional disbursement. The policy may be set out in their terms of business, or it may be a separate document. You need to check their policy. If they are not complying with their own policy, you have grounds for complaint.

Thanks for your reply prh47bridge.

In the Terms of Business it says that their policy on the payment of interest on client monies is available on request or online (on their website). Their TOB also says that interest will be calculated and paid on monies which are held by their firm on the client's behalf at the applicable rate(s) payable by their bank over the period for which they hold cleared funds.

So I then went onto their website and obtained a copy of their Payment of Interest Policy. Under one of the clauses it states that they will retain interest paid to them by the bank on the aggregate of all client monies held in the General Client Account.

I wonder if the SRA Accounts Rule 7.1 still overrides this practice?

I cannot comment on whether this particular solicitor's policy is compliant. You need to raise a complaint with them. If that doesn't get you anywhere, you can complain to the SRA who will decide whether this solicitor's policy complies with their rules.

Okay, thank you.

Hi, I'm a solicitor. Client account doesn't accrue interest. Only time interest is accrued is if money is in a separate designated deposit account (for example in divorce proceedings if a house has sold but a settlement hasn't been agreed), in which case it is paid to the client.

I had this issue some years ago, so not recently (about 18 years ago). Very delayed sale and interest was payable. Firm were reluctant but did pay. Solicitor was subsequently struck off for use of client monies.

It really depends on how substantial the amount is. If it is substantial, and for a long period of time, the funds should ideally have been placed on deposit. Years ago it was standard practice to pay interest, but when interest rates fell it was no longer worthwhile as the calculations would probably cost more than the interest!

Incorrect

Solicitor was holding inheritance money for DD and when she turned 18, we requested the funds. These were paid with interest, which the solicitor made a big fuss about calculating, but interest was paid. My financial advisor at the time commented that if said solicitors had held each client's funds in a separate account rather than pooling them, paying interest would have been less of a headache for them...

Additionally, said solicitor charged fees for holding the money even though DD was legally not allowed to access it until aged 18.

That’s been how it works for every firm I’ve worked for. If you think otherwise then please enlighten us.

Im a legal cashier, we earn/pay interest on funds held in our client account

We also pay interest on client

If it's a substantial amount of money, then it shouldn't just be sat in Client account for more than a few days. It should have been transferred to a deposit account. You're saying this was a substantial sum held for 4 years, so interest should certainly have accrued on a deposit account. I'd speak to the SRA.

I’ve been a legal cashier for 27 years and we definitely earn interest on our clients account, which the bank pays into our office account each month. Until the Bank of England base rate dropped to virtually nothing we would either run an interest report each week and pay out anything over the de Minimis set by the firm or, when it was expected that we would be holding funds so as probate monies, an individual deposit account would be opened. The firm I currently work for mostly deals with conveyancing so it’s not very often we hold funds for more than a few days but, when there has been a delay which wasn’t the fault of the client, I will be asked to do a manual calculation based on the rate paid to us and pay them out of the monies held on the interest nominal.

Yes, my solicitor paid us around £250 in interest after they held our payment for our house for around 12 hours. We received it about 8 weeks after the sale.

I can run a report by pressing one button that tells me how much accrued interest I have for every single one of my clients, to the penny. We absolutely pay interest on client account, although there is a de minimis (use to be £20 but not sure what it is now) and sometimes for amounts over this but still small clients just ask us to pay it to charity.

Interesting, like I said my experience across all of the firms I’ve worked for is that interest is only paid to the client on funds held in a separate designated account.

I know otherwise. Head of Finance in a top city law firm, 25+ years experience in prestigious firms. And my thanks to all of the legal cashiers for confirming (you all do a fantastic job btw- such an underrated but important role)

I’m a legal cashier too. Theirs is no requirement to put large sums on a designated deposit account. We hold millions on behalf of clients and we don’t do this, we do have lots of deposit accounts but we don’t routinely open them unless for a reason. The SRA would not be interested in this.

OP a lot of the solicitors I work with are great at legal advice but their accounts knowledge leaves a lot to be desired, they can’t read a ledger and need their hand holding through the financial processes. Just ask him/her to check with their cashiers what the interest policy is and as for them to run a calculation of interest due