Written by Karen Bryan
I read that Santander now offer a cashback current account. Sounds too good to be true that you can get cashback on paying your household bills by direct debit from your current account? Well maybe, for a start there’s the pesky £2 a month account fee. You have to pay at least £500 a month into the account. If your account balance is higher than £3,000, you get 3% interest on your money. There are pretty hefty charges for being overdrawn. I didn’t look at these, as my current account is never overdrawn: I leave at least £200 extra sitting in the account as a buffer.
I decided to work out if I could save money by opening a Santander 123 Current Account compared to the £5 (after tax) a month i.e. £60 a year payout from my Halifax Reward Current Account, paid as long as I deposit £1000 a month into the account. I also have to factor in that holding that qualifying Halifax current account gives me a an additional 0.2% interest on my variable rate Halifax Cash ISA and Halifax Web Saver Reward for 12 months after opening these accounts.
Cashback & Interest on Santander 123 Current Account
- 1% on water and council tax bills – £15
- 2% on gas and electric bills – £17
- 3% on phone, broadband and mobile bills – £19
- Cashback profit = £27 (£51-£24 annual fee). I’m assuming cashback is tax free.
I’ll estimate that I have an average of £4000 in my current account, so that would give me £98 in interest after tax. So I’d earn around £125 in total from a Santander 123 Current Account.
Conclusion for Our Spending & Savings
To compare the Santander total payback with that from my Halifax Reward Current account, I worked out that the extra o.2% interest paid on my Halifax savings accounts is more than £65. Therefore with an estimated payout of more than £125 from my Halifax Reward Current Account. I’ll stick to it for the moment.
It’s pretty complicated to work out and everyone’s circumstances will be different. If you have higher water, council tax and utility bills than us and you aren’t getting any cashback/bonus on the current account which you presently hold, then the Santander 123 Current Account could be worth investigating as a way to save more money.
Update February 2013
I’ve now opened a Santander 123 Current Account. The main reason was to get the 3% rate of interest on balances which are above £3,000 and up to a £20,000. That rate of interest in higher than any other instant access savings account which I could find. The interest rate on the current Santander eSaver (Issue 9) is only 1.5%.
Santander are also offering some savings account with good rates exclusively to customers who hold a 123 Current Account or 123 Credit Card.
Halifax appear to have stopped offering Reward Current Account holders the additional 0.2% on variable rate savings products but they do have some accounts e.g. Reward Saver which are only available to qualifying current account holders.
You can get £45 cashback by applying for a new Santander 123 Current Account through the TopCashBack site.
Factoring in the Santander 123 Credit Card
To further complicate things, you can get the Santander 123 Credit Card annual charge of £24 refunded for the first year after opening their 123 Current Account. This card offers 1% cashback on supermarket, 2% on department store and 3% on petrol/diesel, train and TFL purchases. However. there is no cashback on purchases for other things e.g. flights or eating out. I’d pefer a credit card without an annual fee which gives me cashback on all my spending.
I already have a couple of cashback credit cards, a Halifax Clarity Card which pays me £5 if I spend £300+ a month and a Barlaycard which offers 1% cashback, which I use after I hit the £300 on the Halifax credit card. The other advantage of the Clarity Card is that you don’t pay any fees on overseas transactions or ATM withdrawals, you only pay interest on the cash withdrawn.
Now my head is spinning and I’ not sure if I’d be better off replacing my present two credit cards with a Santander 123 Credit Card, partly as that depends on how much I travel overseas in the next 12 months. I don’t like the fact that I’d have to pay a £24 fee for the Santander 123 Credit Card in subsequent years. I’m also a bit wary of changing current accounts and credit cards, as the 3% interest paid on balances over £3000 in the Santander 123 Current Account is a variable rate and who knows when/if the cashback rates on the Santander 123 current account or credit card may be revised.