As of 1 January 2026, a New interest rate now applies to compensation awards . The Financial Ombudsman Service (FOS) introduced this change following a consultation held last year on the interest rate applied to redress awards. The update is intended to better reflect prevailing economic conditions and the real cost to consumers of being deprived of their money. Under the new approach, the interest rate is linked to the Bank of England base rate plus one percentage point, replacing the long-standing flat 8% rate that had historically applied to many awards.
What’s changed and why
- Scope
The new interest approach applies only to complaints referred to FOS since 1 January 2026. Older complaints remain subject to the legacy approach where applicable. - Calculation of Interest
- Interest is calculated using a time-weighted average of the Bank of England base rate over the period from when the money was due until payment is made.
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- 1% is added to this average to determine the applied interest rate.
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- Interest is applied on a simple interest basis, compensating consumers for the delay in having use of the money.
- Late Payments
The FOS continues to apply 8% simple interest for post-determination periods where firms fail to pay compensation on time.
- Purpose and Rationale
Feedback from stakeholders, including firms and industry bodies, indicated that the former 8% rate could result in over- or under-compensation relative to actual market conditions. Linking interest to the Bank of England base rate plus one percentage point ensures closer alignment with economic reality and the true opportunity cost to consumers.
Interest calculator
To help firms and advisers estimate how much interest may be due under the new regime, FOS has published an online interest calculator that applies the Bank of England base rate + 1%.
FOS interest calculator: https://interest-calculator.financial-ombudsman.org.uk/
Key things for firms to know
- Applies only to new cases from since 1 January 2026.
- Late payments still attract 8% interest. If compensation isn’t paid by the deadline specified by FOS, interest at 8% simple per year can still be applied to the late period to encourage prompt payment.
- Firms remain responsible for accuracy. While the FOS calculator is a useful tool for estimation and demonstration, firms remain responsible for ensuring any interest paid on awards accurately reflects the basis of the award and the timeframe, including correct dates and rate periods.
How Complyport Can Help?
- Understanding the Regulatory Change: Complyport can support firms in interpreting the Financial Ombudsman Service’s updated approach to interest on compensation awards and assessing the potential impact on complaints handling and redress calculations.
- Policies, Governance, and Oversight: Complyport can help firms update relevant policies, procedures, and internal guidance, as well as strengthen governance and management information around compensation awards.
- Training and Advisory Support: Targeted training and ongoing advisory support are available for Complaints, Compliance, Risk, and Senior Management teams to support confident application of the new framework in practice.
Contact Us
If you would like to discuss the implications of these changes or your firm’s approach to complaints and redress, Complyport can provide tailored support.
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