Santander slashes 123 account interest: other options

Tom Wilson
1 November 2016

Santander 123 account holders will earn just 1.5% interest from today, as the bank has slashed the rate from 3%. 

From now on, balances up to £20,000 will earn a flat rate of 1.5% interest. Previously customers earned nothing on balances up to £1,000 and over £20,000, 1% on balances of £1,000 to £1,999, 2% on balances between £2,000 and £2,999 and 3% on balances between £3,000 and £20,000.

The move will potentially cost savers £300 a year, compared to the maximum annual interest from the old tiered rate.  


This is the second of three body blows to savers with Santander, who saw their monthly fee rise from £2 to £5 earlier this year.

The next hit for Santander’s customers will come in the New Year, when the maximum daily charge for overdraft users will rise from £1 to £3 on 6 January 2017. For the most indebted account holders, annual overdraft charges may rise by more than £700.

Though the account is still one of the better ones available, it’s likely more Santander customers will up sticks in search of better returns on their money. The number of people switching to the Spanish bank plummeted after the September 2015 announcement that annual fees on the 123 Account would rise to £60 – as the graph at the end of this article highlights.  

Current account rates slashed across the board

Santander isn’t the only bank to clawback cash from its customers by cutting rates and hiking fees. As with savings accounts, record-low interest rates are putting profits under pressure, and many of the top deals have been pulled or will be slashed in the near future.

TSB’s Classic Plus Account currently pays 5% interest on balances up to £2,000, though in January the rate will fall to 3% paid on balances up to £1,500. It will continue to pay 5% cashback on contactless spending, capped at £5 per month.

The Club Lloyds Account will pay a flat 2% interest on balances up to £5,000 in the New Year, substantially less than its current tiered rate of up to 4%.

Halifax and Bank of Scotland are also scaling back the monthly payment on their Reward and Ultimate Reward accounts. Currently, people who don’t dip into their overdraft get £5 per month. From January this will fall to just £3.


The only exception to reward cuts among the major players is Nationwide, which has so far announced no plans to cut the bumper 5% interest rate it pays on balances up to £2,500. However, this is an introductory bonus and is only paid for the first year. After that, the interest rate falls to 1%.


Check what you’ll get before you switch

While rate cuts and fee hikes are frustrating, and will push many customers away, it’s vital to check you’re going to get better value by moving elsewhere. Despite being worth substantially less than before, Santander’s 123 account is still one of the best options for many, particularly if you take advantage of the generous cashback scheme of up to 3% on household bills.


Kevin Mountford, banking expert at MoneySuperMarket says: “The headlines about Santander dropping its rates don’t make for comfortable reading, but it’s important to look at the whole picture. The 123 account actually still offers a very competitive package on interest and cashback for those customers with larger balances who use it properly.

“Savers with smaller balances will want to shop around - Santander isn’t the right account for them but Nationwide Flexdirect is a good alternative and there are others out there.

“As for spenders, they can take their pick from any number of attractive switching incentives. So all is not lost and there’s still value to be found, but it’s all about understanding your options, doing your research and then choosing the best account for your needs.”

Quarterly net switchers to Santander

Quarterly switchers to Santander

Source: Current Account Switching Service

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