Santander to Slash Rates on Its 123 Accounts for the Second Time This Year
Interest on Santander’s once market-leading 123 current account will fall again this year, to just 0.6%, in another blow for savers.
At the beginning of the year, the popular 123 account paid 1.5% interest on balances up to £20,000. That rate was slashed to 1% from Tuesday, 5 May, a move that will cost four million account holders up to £100 a year. Santander has also capped previously unlimited cashback on the account to £15 a month.
Now, the bank has announced interest rates on the 123 account will fall still further, to 0.6% from 3 August. Savers will now lose an additional £84 in interest each year, but the account will continue to cost £5 a month, or £60 a year.
The changes mean the maximum savers could earn with the account will crater—from £300 at the beginning of the year, to barely over £200 now and to just £120 from August.
Santander said the rate cuts were in response to the Bank of England’s emergency slashing of the base rate to 0.1% to mitigate the economic impact of the coronavirus pandemic.
Susan Allen, Santander's head of retail banking, said: "While we have had to make a difficult decision in light of the current interest rate environment, our 123 current account continues to provide good ongoing value to customers.
"It remains the only account that offers the ability to receive both interest on balances and cashback on household bills, meaning customers can earn almost £300 per year, for an account fee equivalent to £60 per year. Customers are also able to continue to make use of the exclusive benefits offered by being part of our 123 World.”
When it was launched in 2012, the 123 account paid 3% interest on account balances up to £20,000—a rate so competitive many customers used the current account as a savings account. However, the Spanish-owned bank has slowly chipped away at the interest rate in the intervening years.
Now market-watchers are warning the 123 account is no longer delivering value for money.
Laura Suter, personal finance analyst at AJ Bell, said the 123 account was “once the darling of the savings market” but consumers should now look elsewhere to stash their savings.
“The cut to the interest rate coupled with the £5 monthly fee on the account means that most people will be able to earn more interest on their savings with other accounts. It’s no longer a market-leading account and once the rate falls to 0.6% there are lots of accounts that will be able to beat that rate, particularly as Santander has capped the monthly cashback available too,” she said.
However, well-paying current and savings accounts may be hard to come by. Nationwide, TSB and digital bank Starling have all trimmed the interest they pay on current accounts in recent weeks. Meanwhile, the interest rates paid on cash ISAs and fixed-term savings accounts have plummeted as products have been withdrawn from the market.