FOS to consult on interest - Is 8% too high?

On 4 June 2025 the Financial Ombudsman Service (FOS) opened a consultation into the standard interest applied to its awards which has historically been applied at 8%.

On 4 June 2025 FOS confirmed that they will be consulting on interest rates applied to consumer redress awards, and the circumstances in which interest should not be applied. 

FOS can currently direct redress payors to pay varying levels of interest on top of the compensation awarded. Interest can be awarded in three ways:

1. Interest as part of a money award – effectively, this type of interest comprises interest that was overpaid by the complainant (on a loan for example).
2. Pre-determination interest – being interest awarded on the money that the complainant was deprived of (for example, on an investment that was unsuitable and lost money).
3. Post-determination interest – this is interest applied to the sum awarded in the event that this is paid late.

Points 2 and 3 are to be considered in the current consultation and point 1 will remain unchanged.

The consultation comes after a joint Call for Input from FOS and the Financial Conduct Authority which requested feedback as to how the current dispute resolution system can and should be modernised. Read our previous blog here.

Feedback received by FOS to date suggests that interest awards should better reflect the current market. To date FOS had considered the 8% interest rate to be fair, but it has been suggested by others that this is too high. FOS has suggested that interest at a rate of 1% above the average Bank of England base rate (the base rate) may be a better option going forward given that throughout the previous fluctuations to the base rate, FOS' interest rate has stood at 8%. Other options include retaining the 8% rate or fixing the applicable rate at a lower percentage. 

FOS are asking which of the possible options suggested would be most suitable, what a possible alternative rate should be and how this should be implemented, as well as what situations it may be appropriate not to apply interest.

This comes as part of FOS, the FCA and the Treasury's ongoing attempt to reform the current dispute resolution system and to ensure it aligns with their aims for the future.

Feedback is being collected by FOS and the consultation will close on 2 July 2025.

To read the full consultation paper please click here.