Santander cuts the interest rate on its 123 account and introduces a new overdraft fee

14 January 2020

Santander has become the latest bank to charge an overdraft fee of 39.9%


Santander is slashing the rate on its 123 current account from 1.5% to 1% on balances up to £20,000 from 5 May.

It will also cap cashback paid out at £15 a month. The account currently pays 1% on water bills, council tax and on Santander mortgage payments, 2% on gas and electricity and on Santander home insurance and 3% on phone, broadband, mobile and TV packages. Each category will be capped at £5.

There will be no change to the account fees, which will remain at £5 per month for 123 customers and £1 per month for the Lite Current Account. The range of household bills on which cashback can be earned will also remain the same.

Santander says the changes are being made as a result of the persistently low interest rate environment and the financial impact of regulatory changes in the banking industry.

The Santander 123 account was originally launched with an interest rate of 3% but was cut to 1.5% in 2016.

The cut means the account will be less attractive for savers, with the interest earned dropping by around £100 a year for those with the maximum balance of £20,000.

Andrew Hagger, a personal finance expert at Moneycomms, says: “The Santander 123 account was a stand-out deal in its prime and extremely popular, but in the last few years the offering has been gradually watered down and is now a shadow of what it was.

“There is still a little money to be made and even though the rate has been slashed to 1% that's not a terrible deal in the current climate where the best easy access savings accounts are only paying around 1.35%.

“The cost of new overdraft regulation has seen Santander cap the cashback on direct debits to a maximum of £15 per month so it's still possible to get a positive return after the £5 monthly fee but it's nowhere near as attractive.”

Susan Allen, head of retail banking at Santander, says: “While we have had to make some difficult decisions in the current environment, our current account range remains very competitive.

“Our 123 accounts provide a range of benefits that we know our customers value and our goal is to ensure these accounts remain sustainable for the future.”


A number of banks have slashed their current account rates in the past year, while savings rates have also been falling.

The drop in rate puts the Santander 123 account well below the top easy-access rate from Gatehouse Bank at 1.40%.

It also falls short of the highest paying current accounts.

The current Moneywise Best Buy is the Nationwide FlexDirect which pays 5% interest on balances up to £2,500. This is an introductory 12 month offer - when it ends the rate drops to just 1%. Agreed overdrafts are free for the first year but you’ll need to pay in at least £1,000 a month.

The TSB Classic Plus pays 3% interest on balances up to £1,500. You will need to pay in at least £500 a month, register for internet banking, opt-in for online bank statements and paperless correspondence.

Overdraft fees

Santander is also scrapping its overdraft fees and introducing a single interest rate of 39.9% from 6 April.

It says that anyone using an arranged overdraft of less than £1,065 will pay less than they do today.

Santander currently charges £1 a day below £2,000, £2 a day £2,000 to £2,999 and £3 a day £3,000 and over.

How the changes affect you will depend on the size of your overdraft and how long you are overdrawn for.

If you had an overdraft of £200 for a month you would pay £31 under the current charges. With the new fees you will pay £2.89.

With an overdraft of £2,500 you currently pay £62 per month. Under the new charge structure you will be worse off as you will have to pay £72.36.

The bank says six out of seven customers who use an overdraft will pay less under the new charging structure.

This is happening because of a crackdown on overdraft charges by the Financial Conduct Authority (FCA).

Lenders make over £2.4 billion from overdrafts a year, with around 30% from unarranged overdrafts.

Under radical new plans from the financial watchdog, banks and building societies will no longer be able to charge higher interest rates on unarranged overdrafts than they do on arranged ones from 6 April 2020.

They will also not be allowed to charge fixed fees for overdrafts. Instead they will have to introduce a simple interest rate. Banks have responded by raising overdraft rates.

Other banks and building societies which have already raised overdraft rates include Nationwide, HSBC, NatWest, RBS and Barclays.


Santander cuts the interest rate on its 123 account

I transferred my current account to Santander many years ago and to be honest, I am probably one of a minority of current account holders who, up until now has been reasonably satisfied with the service from Santander, I have always maintained a healthy balance in my current account and even when the interest rate dropped from the initial 3% to 1.5%, the interest paid on balances combined with cashback on utilities more than compensated for the introduction of their £5 monthly account charge. However, when the rate reduces to 1% in May 2020 I intend to transfer the bulk of my current account balance into my stocks and shares Isa account operating on the investment platform I use. I am confident that by choosing to invest the lump sum in one of the leading investment trusts on offer that I will see a much better return over the next few years.

Santander changes

I agree with Ray Lowe,As a very experienced investor,I can confirm that there are some great returns to be had on Investment trusts.However,it is very important to remember that your capital is never guaranteed,and the inintial value can fall,quite dramatically,in some cases,be a bit careful

Lower interest rate

Shameful I viewed Santander to be the best bank even have shares in it . So disappointed in the expected savings rate changes . I will be looking elsewhere !!

santander 123

if santander stop paying money to the overpaid weasels ANT AND DEC with stupid adverts maybe we would benefit on the 123

Santander 123

Why does Santander waste so much of our money employing those stupid Ant and Dec characters? No wonder they have to reduce their interest rate to a rubbish 1%!!

Santander rate cut

The new rate of 1% will effectively fall to 0.7% when the £5 account fee is taken into account and is based on the maximum qualifying account balance of £20000. On lower balances and the interest rate gets progressively worse. Payment on direct debits will effectively increase the rate of return but for most people this is unlikely to be more than 0.2%.
Come May, I and my wife will ditch the 123 Account and move our money elsewhere.


I think all customers of Santander should look elsewhere for their current account. I think paying a £5.00 fee for such a poor account is awful. The customers that use for interest on their £20,000 will also be annoyed. TSB Bank only pays interest up to £1500 and Nationwide Building Society have an account that only pays 5% interest for 12 months. The most you can have in that is £2500 to get interest. If a lot of customers leave Santander Bank they will understand they have made their 1 2 3 Account less attractive. Their overdraft fees sound especially nasty now as well.

Savings interest

I have been with Santander right back since the days it was the Leicester permanent building scociety but due to the low rates of interest changes I will be looking elsewhere to put my money,

Current account interest

I have been a loyal customer with Santander for many years, but from May 2020 when the interest rate drops to 1% I will be moving to another bank. What a shame, you will lose many customers.

Santander 123 interest rate reduction

Maybe the bank could save money by stopping the inane and annoying Ant and Dec television adverts, then they could reduce the 123 account fee and perhaps pay a decent interest. There is an opportunity here for a dynamic bank to step in and give Santander a run for their money.


I have been through Girobank ,All &Leicester to Santander ,they had the best savings,.isa and current account rates in their time, now sadly not the case , time to move as I think many of your customers will.

Ant and Decs one million pound fee for advertising

Loyal members have stayed with Santander and all we see are our savings rates go down and down .
Why are you paying Ant and Dec the huge fee of one million pounds each it will not bring more clients in, in fact it will make you lose more clients.
I will certainly will be looking around if you continue with their contract.
Absolutely disgraceful.


Closed 123 today.
The only way to make a meaningful protest.

123 account

On lockdown at the moment but as soon as I am able I will be removing to another bank due to the awful rate

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