August 2016 update: Santander is planning to reduce the interest rate on Santander 123 to 1.5% in November.
Santander 123 has long been a favourite amongst savers looking for a versatile current account with a generous interest rate.
With the account paying 3% interest on balances between £3,000 and £20,000, it’s easy to see why it’s so popular.
However, in January this year the bank announced that new and existing account holders would need to pay a £5 a month fee in order to keep the account.
Considering rival bank Halifax offers the Reward Current Account which rewards savers with £5 a month rather than taking it away, is the Santander 123 current account really worth it? Let’s investigate…
What are Santander 123’s key features?
Interest
- 1% on balances once you have £1,000
- 2% on balances once you have £2,000
- 3% on balances between £3,000 and £20,000
Cashback
- 1% cashback on water, council tax bills and Santander mortgage repayments
- 2% cashback on gas and electricity bills
- 3% on communication bills such as phone, mobile and broadband
You don’t have to switch from your existing current account to this one, but you can do if you wish. If you do switch, Santander will move it across within 7 working days.
How much interest will I earn on my savings?
According to Santander’s interest calculator, you could earn the following sums in interest:
£5,000 saved: £88
£10,000 saved: £236
£15,000 saved: £384
£20,000 saved: £532
The figures above show the amount of interest you’re predicted to earn minus the £5 a month fee
What do customers need to do to qualify for the benefits?
- Pay a monthly account fee of £5
- Fund the account with at least £500 a month (must be from an external source and cannot be from another Santander account)
- Have at least 2 active Direct Debits leaving the account each month
Who can benefit the most from the Santander 123 account?
The easiest way to figure out whether Santander is worth your while is to tot up the annual cost of holding the account (£60) and predict the amount you’ll earn through interest and cashback.
Bill payers
To make the most of Santander 123, you should make sure all relevant bills are paid from the account.
According to MoneyComms, the average customer earns approximately £75.12 a year in cashback which certainly covers £5 a month fee. You’ll also gain interest on top of that depending on the amount you hold in the account.
Big savers
Big savers with more than £3,000 will soon start raking in the interest and, with most current accounts setting savings limits below this amount, 3% interest on such a high figure is extremely difficult to beat.
Who will benefit the least from Santander 123?
Non-bill payers
If you don’t pay any bills or only pay one or two small bills, you won’t be able to use the account’s cashback feature to its full potential. However, that’s not to say that you shouldn’t get the account. If you’re able to save a large amount of money, the amount of interest you earn may make up for the lack of cashback.
Small savers
If you’re unable to save a large amount of money in your account, you may be better off with a different high interest current account.
- TSB pays 5% on balances up to £2,000
- Nationwide Flex Direct offers 5% on £2,500
- Club Lloyds pays 4% on deposits between £4,000 and £5,000
Should I open a Santander 123 account?
This all depends on your individual circumstances, goals, and saving abilities.
I’ve just opened one myself because:
- Up until recently I’ve been hoarding my deposit savings in a low interest cash ISA offering just 0.25% interest
- I’ve just opened a Help to Buy ISA to boost my house deposit savings. Since this is technically classed as a Cash ISA and you can only place money in one such ISA each year, I need somewhere else to put the rest of my money
- I’ve realised how silly I am for failing to make the most of interest up until now!
Since I don’t currently pay bills (aside from my mobile phone contract), I won’t be able to make the most of the cashback on offer yet. I’ll make up for that by putting a large amount of money in the account, though.
