Santander launches market-leading current account
Santander's new 123 current account pays up to 3% on balances, making it the market leader.
The interest is paid in stages. For balances of more than £1,000 you'll earn 1% interest, of more than £2,000 you'll get 2% and only when you have more than £3,000 in your account will you start earning 3%.
The 123 account also gives cashback on household bills. For water and council tax you'll get 1% of your spend back, on electricity and gas you'll earn 2% and on mobile, home phone, broadband and paid-for TV packages you'll earn 3%.
To qualify you'll need to deposit at least £500 into the account each month and both new and existing customers can apply.
"We understand that times are tough at the moment, and we believe our new 123 current account will help make a real difference to people by providing interest on balances and cashback on their everyday bills," says Rami Aboukhair, director or products and marketing for Santander.
But Michael Ossei, personal finance expert at uSwitch, warns that "although it sounds like money for nothing", with a £2 monthly fee attached "consumers should check exactly how much cashback they will earn before signing up to this innovative new deal".
Santander has impressed us with this deal, which looks from the outset to be a step above anything else offered on the market. It pays the highest rate of interest of any current account and with the extra reward of cashback it will be helpful for families with high monthly outgoings.
However, there are restrictions to watch out for. With a £2 monthly fee and a minimum balance you'll need to make sure the benefits outweigh the charges. As the 3% is only paid on balances of more than £3,000 it pays to have as much in your current account as possible. Most of us don't have a running balance of more than £3,000 in our current account so it may not be worth switching unless you are going to have plenty of money running through the account. Interest is also calculated daily so you need to try to keep a high balance for as many days as possible to get the full reward.
The cashback offer is certainly an extra incentive for the account but research from uSwitch shows that the average customer will gain just £72 cashback a year. One the monthly fee is factored in that equates to just £4 a month.
Also, this account is best avoided if you ever go into the red. Dip into an arranged overdraft on the 123 account and you'll pay £1 a day for the privilege (capped at £20 a month). Go into an unauthorised overdraft and you'll be clobbered with a £5 a day charge, which is only capped at £95 a month. So have a cashflow crisis and you could very quickly wipe out all the benefits of this account.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.