The Rise & Fall Of The Interest Rate – Why A Review Of Client Bank Accounts May Be Overdue

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Without giving away my age, when I was born, the base rate stood at 5%. When I left school, it had risen to almost 15% and then when I left university, it had fallen back down to almost 5%.  We are all acutely aware that the base rate has been at 0.5% since March 2009, a timeframe of over 7 years.

Thinking about those days where interest rates were much higher, law firms were in an enviable position of being able to make a profit and generate cash flow from the interest earned on client funds held in general client bank accounts. For some law firms, this created an additional layer of profit for sharing amongst the partners of the day or for re-investment back into the firm; for other law firms, it masked the true profitability of delivering legal services and no doubt created financial pressures as the recession hit in 2008/09 and the demand for legal services fell and changed.

It has been the case that law firms have not been able to generate the same levels of profits from bank interest for many years now and I wonder whether there has been some complacency about checking whether the best deal in the marketplace is still being obtained. The rules remain in place of where client money can be banked and how it must be ring fenced from monies belonging to the firm itself; however, there are numerous options and providers of client bank accounts.

I would encourage a regular review of the client bank accounts being used to ensure that law firms are able to take advantage of any preferential rates. There is no shame in making the money work harder. Where interest becomes payable to a client under the rules, it can also generate a better return for the client depending on your interest policy  – which incidentally should be in writing. Surely this can only be a good thing in providing legal services in a day and age where competition and pressure on margin is ever increasing.

Helen Clayton – Head of Corporate Services & Legal Specialist