Policy on interest and client deposit accounts

As solicitors, we are often asked to hold on to sums of money for clients – sometimes, this can be for large amounts, for a long period of time, and especially in situations where the time for paying out those monies is uncertain (such as in divorce cases, or probate matters).

Historically, solicitors have opened special deposit accounts with their bank, known as “designated client deposit accounts” (which are separate from the main “client current account”), and the funds have been placed in those accounts until they were required to be paid out.

However, following changes to the requirements of the high street banks, and in view of the extremely low interest rates now being offered by the banks (at a time when base rates are still at 0.5%, and banks are offering a rate of only about 1% on such designated client deposit accounts), the time and costs involved in setting up such designated client deposit accounts can mean that it is uneconomic to pursue such a policy.

As a firm, to set up a designated client deposit account, we would charge £250.00 plus VAT as the initial set up cost (to reflect the time that this takes). Additionally, for every account that we operate like this, we would raise an annual charge of £250.00 plus VAT for each financial year (or part of a financial year) that the account was operated, again, to reflect the time (and additional audit costs) incurred in monitoring the account.

In short, for each account that we operate as a designated client deposit account, a client would incur charges of £500.00 plus VAT for the first year, and thereafter £250.00 plus VAT as an ongoing cost.

At a time where the amount actually earned on deposits is so low (we pay interest to clients at a rate of 1% below the base rate from time to time of Lloyds Bank plc – so, at present, we pay no interest at all to clients on funds held in our main client current account), we would have to hold a sum of at least £60,000 for a whole year in a designated client deposit account, simply to offset the initial set-up and monitoring charges.

In any case where a client wishes us to set up a designated client deposit account, we will of course be happy to arrange this with our bank – but subject to the above charges applying.

If you have any queries about this, please e-mail to the Senior Partner, Edward Foster, at edward.foster@fosters-law.co.uk Fosters Law (1st April 2013)