Santander Paying More Interest on a Current Account Than an Instant Access Savings Account

Written by Karen Bryan

santander123cxurrentaccountUpdate 22 May 2015 – The Santander 123 Current Account is still paying a rate of 3% on balances between £3,000 to £20,000). That makes me glad that I did open this account, especially as interest rates on savings account have dropped over the last couple of years. I also earned £45 cashback by opening my Santander 123 Current Account through the link on the website.

I’m amazed that the Santander 123 Current Account is still paying 3% (variable) interest on balances of £3,000 to £20,000 when the Santander eSaver (Issue 11) account is paying a paltry 1.0% in interest. I’m starting to think that I may need to open a Santander 123 Current Account in order to access that 3% rate on instant access savings when the 12 month bonus on my Santander eSaver (Issue 5), currently paying 3.2%, expires in April.

I do have a Halifax Reward Saver paying 2.5% (variable) with a 12 month bonus which expires at the end of August. But if I make more than four withdrawals during the 12 month period, the rate of interest will fall. Therefore, I still need an unlimited access savings account for everyday use.

At present, the highest rate of interest I can find for instant access savings is 2.35% with BM Savings. However that’s ruled out as it requires a minimum deposit of £50,000. The next best rate is 2.1% (variable) with the Post Office.

I’m quite happy with my Halifax Reward Current Account which pays me a £5 monthly bonus, as long as I pay £1,000 into the account. That makes me loathe to change to the Santander 123 Account, which has a £2 a month fee. I can probably cover that fee by cashback earned on paying qualifying household bills by direct debit from the Santander  current account.

I worked out that getting another 0.9% in interest by having £17,000 in the Santander 123 Current Account (you only get 3% on balances between £3,000 and £20,000), versus having the £17,000 in the Post Office account paying 2.1%, would give me another £170 (£136 after basic rate tax) in additional annual interest.

Holders of the Santander 123 Cashback Current Account also get exclusive access to selected savings account, at present it’s the Santander 18 Month Fixed Rate Bond, paying a competitive 2.75%.

My concern is that once I go through the hassle of changing my current account, that Santander could reduce the variable 3% interest paid on savings.

It seems like such an effort to earn a bit of (not guaranteed) extra interest on your savings.

Interest rates correct on 25 January 2013.