Statutory Interest: A Plain-English Guide

Every interest rate in commerce comes from one of two places. A contract rate is one the parties chose — the APR on a credit card, the interest clause in a loan note, the late fee written into a supply agreement. A statutory rate (also called a legal rate or judgment rate) is one the law imposes, and it takes over precisely in the situations where no valid contract rate governs, or where public policy overrides the deal the parties struck.

The practical consequence is simple. If you win a lawsuit, the amount owed keeps growing at a rate the legislature picked, not one you negotiated. If you underpay your taxes, the agency's statutory rate applies automatically. And in much of the world, a business can charge statutory interest on a late invoice even if the contract said nothing about interest at all — the law supplies the term the parties left out.

Freedom of contract usually wins. Where the parties agreed on a lawful interest rate, courts generally honor it, and that agreed rate — not the statutory one — controls. Statutory interest is best understood as the law's default: it fills the gap when the contract is silent, when the agreement is void, or when a dispute moves into a forum (a courtroom, a tax file) where the legislature has decided the rate itself.

Two important limits cut the other way. First, usury caps and consumer-protection statutes can strike down a contract rate that climbs too high, sometimes snapping the obligation back to a statutory maximum. Second, once a claim is reduced to a court judgment, many jurisdictions replace the contract rate with the post-judgment statutory rate — the debt "merges" into the judgment and accrues at the legal rate from then on. Knowing which rate applies at which stage is half the battle.

Statutory interest is not one thing; it is a family of rates that surface in three recurring arenas.

• Court judgments. Interest accrues on money judgments both before and after they are entered. Prejudgment interest compensates a plaintiff for the time between the harm and the verdict, and often applies only to liquidated (fixed, calculable) amounts. Post-judgment interest runs from entry of judgment until it is paid.
• Unpaid tax. Revenue agencies charge interest on underpayments and, in some cases, pay it on refunds. In the US, the IRS underpayment rate is the classic example.
• Late commercial payments. Many jurisdictions give suppliers a statutory right to charge interest on overdue business-to-business invoices — most prominently the UK and EU regimes discussed below.

Each arena has its own rate, its own start date, and its own compounding convention. Do not assume the number from one carries over to another.

There are only two ways a statutory rate gets its number, and telling them apart tells you how often it moves. Some rates are fixed in the statute — a legislature writes a flat percentage into the code, and it stays there until lawmakers amend it. Many US state judgment rates work this way, which is why a state's rate can sit unchanged for years.

Others are pegged to a market benchmark and reset on a schedule. The US federal post-judgment rate is tied to the 1-year Treasury (CMT) yield and updates weekly; the IRS underpayment rate is built on the federal short-term rate plus a statutory margin and resets quarterly. Benchmark-linked rates are the ones that quietly drift, so a figure you relied on last quarter may already be stale. That difference — statute-fixed versus formula-driven — is exactly the split our verification process is organized around.

The United States has no single statutory rate. Federal courts apply the federal post-judgment rate under 28 U.S.C. § 1961, while each state sets its own rate for judgments entered in its courts — and those vary widely in both level and mechanics. Some states use a flat statutory percentage; others peg to a benchmark or blend the two.

Layer on the pre- versus post-judgment distinction and you have a genuine patchwork. A single case can involve a prejudgment rate for the period before trial, a different post-judgment rate afterward, and separate rules for whether interest is simple or compounding. Our state-by-state index tracks each jurisdiction, and the state judgment interest calculator and prejudgment interest calculator apply the right convention once you have identified the governing rate.

Outside the courtroom, the clearest modern example of statutory interest is the right to charge it on late commercial invoices. The UK's Late Payment of Commercial Debts (Interest) Act 1998 lets a business charge statutory interest on an overdue B2B debt at the Bank of England base rate plus a fixed statutory addition, with the base-rate component locked to a reference date twice a year rather than the live rate. The current figure lives on our UK late payment rate page.

The EU's Late Payment Directive follows the same architecture: a reference rate (the European Central Bank's main refinancing rate) plus a statutory margin, refreshed at set points in the year. See the EU late payment reference rate for the current basis. Both regimes share a design principle — a public benchmark plus a fixed spread — but they use different benchmarks and different reset dates, so a UK figure is never a stand-in for an EU one. The late payment interest calculator handles the period math for either.

Once you have the correct rate and start date, the arithmetic is usually straightforward — but the compounding convention is where people go wrong. Some statutory interest is simple (UK late-payment interest, and many US state judgment rates), while other regimes compound (the federal post-judgment rate compounds annually; IRS interest compounds daily). Always confirm which applies before you calculate.

For example, at an illustrative 5% simple annual rate, a $100,000 judgment accrues about $5,000 over a year — roughly $13.70 per day. Change the rate to an illustrative 8% and the same judgment grows about $8,000 a year. Those numbers are for illustration only; plug the live rate into the post-judgment interest calculator or the IRS interest calculator for a figure you can rely on, and browse the full calculator library for other scenarios.

This is reference information, not legal advice. Rates change, carve-outs apply, and the governing rule depends on your jurisdiction and the type of claim. Always verify the current rate against the official statute or agency source before relying on it — which is the whole reason StatuteRates cites and re-checks each one.