The Financial Ombudsman Service has published a news article reminding firms that a new interest rate applies to the compensation it directs financial businesses to make for cases referred to its service on and after 1 January 2026.
- Following a consultation last summer, FOS 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 FOS on and after 1st January 2026, and it aims to strike a balance between simplicity, fairness and proportionality.
- 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.
- FOS has provided a calculator to help businesses understand how much interest, using the new rate, may be due.
- 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.
- FOS can also direct a business to pay 8% simple interest if it doesn’t pay compensation on time. This rate remains in place.