Santander 123 Products Too Good to Last

Written by Karen Bryan

santander123cxurrentaccountEver since the Santander 123 Current Account was launched, more than three years ago, I’ve been expecting a cut in the 3% rate of interest paid on balances between £3,000 – £20,000. To qualify for the 3% rate of interest, you must pay in at least £500 a month from an external source, set up a minimum of two direct debits and pay a monthly fee of £2.

I’ve been able to more than offset the £2 monthly fee charged on the account through cashback earned on household bills such as broadband, water and fuel paid by direct debit from the account.

With the rates of interest paid on instant access savings accounts around 1.5%, it’s been great to able to earn 3% on the Santander 123 Current Account.

As we know, all good things come to an end.

From January 2105, Santander are upping the monthly fee on the 123 Current Account from £2 to £5. That’s a huge increase, that will disproportionally affect customers with lower balances.

If you keep more than £4,000 in your Santander 123 Current Account, then you will still earn more in interest than you would in an instant access savings account (calculated at a rate of 1.5% paid on the instant access savings account), after deduction of the £60 annual fee. If you also earn some casback on direct debits, then you are onto a winner.

I think that Santander have been quite clever about this. By increasing the monthly fee, but maintaining the rate of interest, they are likely to retain the most affluent customers to whom they can sell other financial products.

If you don’t keep much cash in your current account, you should look at switching to another high interest current account. You can earn 5% interest on balances of up to £2,000 in a TSB Classic Plus Current Account, as long as you pay in £500 a month from an external source, with no requirement for any direct debits. You can also earn 5% cashback on contactless payments made with the TSB Classic Plus debit card until 31 December 2016.

Santander are also upping the annual fee on their 123 Credit Card from £24 to £36. This credit card is now far less attractive to new customers, as the cashback you can earn has been restricted to a total of £9 a month.

Existing card holders can earn unlimited cashback on supermarket and department store purchases and up to £9 a month cashback on national rail, Transport for London and petrol or diesel purchases.

However the Santander 123 Credit Card remains appealing for the 23 month 0% interest on purchases and balance transfers (with no balance transfer fee) promotion.