Statutory interest is a rate set by law that applies to unpaid court judgments and overdue debts when the parties never agreed on an interest rate themselves. It fills the gap left by a silent contract and compensates the person owed money for being made to wait. In federal courts the rate tracks the one-year Treasury yield and recently sits around 3.6% to 3.7%, while state rates vary widely, often falling between 6% and 12%.
When Statutory Interest Applies
The core trigger is silence. If a contract says nothing about what happens when payment is late, the law supplies a default rate automatically. Deliver goods on an invoice with no late-payment clause, and the buyer stalls? The statutory rate attaches. The same logic covers breach-of-contract disputes where a specific sum was due by a deadline and never paid.
Personal injury cases work on a different schedule. Courts apply statutory interest to damage awards after a verdict, compensating plaintiffs for the time their money sat in legal limbo. The rate attaches to the full compensatory award — medical expenses, lost wages, and the rest — from whatever starting point the governing statute specifies.
Across all of these situations, the important split is between two phases. Pre-judgment interest covers the period before the court rules. Post-judgment interest runs afterward, until the defendant actually pays.
Pre-Judgment Interest
Pre-judgment interest runs from the date a financial loss occurs to the date the court enters judgment. In most jurisdictions, the damages have to be “liquidated” — meaning the dollar amount was either fixed in the agreement or could be calculated from the contract documents alone, without expert testimony or guesswork from the judge.
Take a contract calling for $50,000 in delivery fees that the buyer refuses to pay. That number is liquidated; it sits on the face of the agreement, and pre-judgment interest starts accruing on the date payment was due. A claim for “lost business opportunities” requiring extensive expert analysis to quantify is unliquidated. Under traditional common law, unliquidated damages didn’t qualify for pre-judgment interest at all. Many states have since passed laws allowing it in specific tort actions, but eligibility stays narrower and more discretionary than for liquidated claims.
The dollar impact adds up quickly. On a $200,000 award in a dispute that takes three years to resolve, pre-judgment interest at 8% adds $48,000. Without it, the plaintiff ends up with dollars worth less than when the breach occurred, and the defendant effectively profits from delay.
Post-Judgment Interest
Once a court enters a final judgment, post-judgment interest begins accruing on the full amount, including the original damages, court costs, and any pre-judgment interest the court awarded. This phase continues until the defendant pays.
In federal court, 28 U.S.C. § 1961 makes post-judgment interest automatic. The rate equals the weekly average one-year constant maturity Treasury yield published by the Federal Reserve for the calendar week before the judgment date. Interest accrues daily and compounds annually, so interest earned in the first year is folded into the principal for the second year’s calculation.1Office of the Law Revision Counsel. 28 U.S. Code 1961 – Interest State courts set their own post-judgment rates. Some mirror the federal approach with variable rates tied to external benchmarks; others use fixed percentages that may not change for decades.
Collection isn’t automatic. When a defendant won’t pay voluntarily, the plaintiff needs a writ of execution — a court order directing a U.S. marshal or sheriff to seize the debtor’s assets. Under federal law, that writ must specify the interest due, the total owed as of the date the writ is issued, and the applicable post-judgment rate.2Office of the Law Revision Counsel. 28 U.S. Code 3203 – Execution
Every day of delay grows the total. A $100,000 federal judgment at 3.7% adds roughly $10 a day. That sounds modest until the case drags on. Two years of post-judgment delay adds over $7,500, and because federal interest compounds annually, the third year’s interest is calculated on a higher base.
How the Rate Is Set
Statutory interest rates fall into two camps: fixed and variable. The choice makes a real difference in what a judgment creditor actually collects.
Fixed Rates
Fixed rates are written directly into state statutes as a flat percentage that doesn’t change unless the legislature acts. They tend to stick around for years, sometimes decades. State fixed rates generally cluster between 6% and 10%, though outliers exist in both directions. The advantage is predictability — both sides know the number in advance. The disadvantage is drift. A rate set when Treasury yields were in double digits can deliver a windfall in a low-rate environment, or the reverse once market rates climb above it.
Variable Rates
Variable rates track an external benchmark, typically a Treasury yield or the Federal Reserve’s discount rate. The federal system under 28 U.S.C. § 1961 uses the one-year constant maturity Treasury yield, published weekly in the Federal Reserve’s H.15 statistical release. For a judgment entered in late April 2026, the applicable one-year Treasury yield based on recent H.15 data falls in the range of approximately 3.6% to 3.7%.3Federal Reserve Board. Selected Interest Rates (H.15) The court uses the weekly average for the calendar week preceding the judgment date, so the exact rate depends on timing.
Variable rates reflect actual borrowing costs. When market rates are low, the statutory rate is low; when they climb, the statutory rate follows. A growing number of jurisdictions have shifted toward this model to avoid the mismatch problems that plague fixed rates set long ago.
How Statutory Interest Is Calculated
The math depends on whether the governing statute calls for simple or compound interest. Getting this wrong leads to significant over- or under-collection.
Simple Interest
With simple interest, only the original principal generates interest. The interest itself never grows the balance. The formula:
Principal × Annual Rate × (Days ÷ 365) = Interest Owed
A $150,000 judgment at 6% simple interest for exactly two years produces $18,000 ($150,000 × 0.06 × 2). Many state courts use simple interest as the default unless the legislature specified otherwise.
Compound Interest
With compound interest, interest earned during one period gets added to the principal, and the next period’s calculation runs on the larger number. Federal post-judgment interest works this way: it accrues daily and compounds annually by explicit statutory command.1Office of the Law Revision Counsel. 28 U.S. Code 1961 – Interest That same $150,000 at 6% compounded annually produces roughly $18,540 over two years, about $540 more than simple interest. The gap widens with time and principal.
Which method applies depends entirely on the statute governing your case. Some state courts have discretion to award compound interest when equity demands it, though courts have traditionally disfavored it. There is no universal default. Check the specific statute controlling your situation.
When a Contract Rate Overrides the Statutory Rate
Statutory interest is a fallback, not a ceiling. If your contract specifies an interest rate for late payment, that agreed rate generally takes precedence over the statutory default for the pre-judgment period. Courts look to the contract first and reach for the statutory rate only when the contract is silent.
Post-judgment interest is trickier. In many jurisdictions the statutory rate applies automatically after judgment unless the contract specifically states that the contract rate continues post-judgment. A clause saying “12% interest on unpaid invoices” may not survive the transition from pre-judgment to post-judgment, and the statutory rate could replace it. If preserving the contract rate through the post-judgment phase matters, the agreement has to say so expressly.
One guardrail. Usury laws cap the maximum interest rate that can be charged on certain types of debt. If a contract sets a rate above the applicable usury limit, the excess is unenforceable, and in some jurisdictions the lender forfeits the right to collect any interest at all. Statutory interest rates are always set within these legal boundaries, so they never raise usury concerns. Contract rates do, and they need to be checked against the limits for the jurisdiction and type of transaction involved.
Taxes on Statutory Interest
Statutory interest received on a court award is taxable income, and this catches many plaintiffs off guard. The IRS treats interest received on judgments, settlements, and awards as ordinary income that must be reported in the year received.4Internal Revenue Service. Publication 525, Taxable and Nontaxable Income Interest is explicitly listed as a component of gross income under federal tax law.5Office of the Law Revision Counsel. 26 U.S. Code 61 – Gross Income Defined
If you receive $10 or more in statutory interest, the paying party must report it to the IRS on Form 1099-INT.6Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID You’ll owe tax on the interest at your ordinary rate, even if the underlying damages would otherwise be tax-free. A plaintiff who wins $500,000 in physical-injury damages (non-taxable) plus $75,000 in pre-judgment interest (fully taxable) needs to plan for a real tax bill on that $75,000.
When the Federal Government Is the Late Payer
Statutory interest also applies when the federal government itself pays late. Under the Prompt Payment Act, federal agencies that fail to pay contractors on time owe interest at a rate pegged to Treasury borrowing costs. For the first half of 2026, that rate is 4.125%.7Bureau of the Fiscal Service. Prompt Payment The rate resets every six months. If you contract with federal agencies, this is the rate you’re owed when payment arrives late, and it applies automatically without the need to negotiate or sue.