3 Steps to Protect Client Account Income as Rates Fall

In the current economic climate, many law firms are facing a growing challenge: banks are reducing interest rates on client accounts, which directly impacts the firm's income. For law firms, particularly those managing large client funds, this reduction can lead to a significant loss of revenue.

From 22nd July 2025, we will again see standard advertised client money interest rates fall below 1% at one of the big four banks. With further rate reduction expected you can be sure the other banks are likely to follow suit, which is why taking action is essential to safeguard income.

The Importance of Retaining Income

Interest earned on client accounts often contributes to a firm's bottom line, enabling them to cover operational expenses or invest in further growth. With interest rates dropping, firms risk losing this valuable income stream, which can affect profitability. More importantly, this reduction could hinder a firm's ability to offer competitive pricing or innovative services to clients. Proactively addressing this issue allows law firms to safeguard their financial stability while continuing to deliver high-quality services.

Three Simple Steps to Take

1. Review Bank Agreements. Begin by thoroughly reviewing existing agreements with your bank. Ensure you understand how interest rates are being applied to client accounts and explore alternative products or terms that may offer better interest rates.

   
   

2. Negotiate with Your Bank. Initiate discussions with your bank to renegotiate terms. Law firms typically maintain substantial balances, which can be leveraged to secure more favourable rates or incentives. By collaborating closely with your banking partner, you may be able to achieve higher interest rates or additional benefits, such as reduced transaction fees, to help offset any loss in income.

   
   

3. Optimise Client Account Management. Consider revising the approach to managing client funds. For example, adjust seasonal balances held within primary and secondary client accounts which will help to maximise interest earnings. Furthermore, streamlining the processes for holding and distributing client funds more efficiently can reduce costs and enhance operational efficiency.

Conclusion

With interest rates on client money decreasing, law firms cannot afford to be passive. By taking proactive steps, such as reviewing agreements and optimising the approach to client account management, law firms can mitigate the impact of lower interest rates and continue to benefit from net interest income.

If you would like expert guidance on optimising your client money management options, contact Paul McCluskey at Gemstone Legal for a professional consultation. Take the next step towards optimising the management of your client money and enhancing your overall financial strategy today. Get in touch.

Gemstone Legal is a leading advisory firm specialising in financial and risk management solutions for law firms. We offer tailored strategies designed to address the specific operational challenges faced by legal practices, with a focus on optimising cash flow, enhancing profitability, and ensuring regulatory compliance. As a Law Society-approved Lexcel assessor, our trusted expertise supports legal firms in achieving financial stability and operational excellence, encouraging sustainable growth.

https://www.gemstonelegal.co.uk