Santander to cut interest rate on 123 current account to 1.50%
The banking giant’s 123 current account offers 3% AER (variable) on balances between £3,000 and £20,000 and up to 3% cashback on household bills for a £5 monthly charge.
But from 1 November, it will cut the interest rate offering to a single structure of 1.50% AER (1.49% gross monthly variable) on balances of up to £20,000.
Under the current rules, anyone with less than £1,000 receives no interest but from November these customers will earn 1.50%.
The move comes just two weeks after Santander confirmed it would be reviewing its current accounts in light of the Bank of England’s decision to cut interest rates to 0.25%.
Santander said the changes in November are being made due to the market expectation of interest rates staying lower for longer, compounded by increased costs brought about by changes in the banking industry.
It said that market rates had fallen considerably since the 123 current account was launched when top paying instant access rates were around 3%, whereas now they’re around 1%.
Santander confirmed there is no change to the cashback benefit of the 123 account – it will continue to offer 1%, 2% and 3% cashback on various bills paid by direct debit.
However, from 9 January 2017, Santander will change the arranged overdraft usage fee structure so it will be tiered to reflect the amount of arranged overdraft used, affecting customers using an arranged overdraft of £2,000 or more.
For an arranged overdraft of below £2,000, the fee will remain at £1 a day.
For an arranged overdraft of between £2,000 and £2,999.99 the fee will double from £1 a day to £2 a day. For an arranged overdraft limit of £3,000 or more, the current fee will triple from £1 a day to £3 a day.
However, the monthly overdraft fee cap will remain at £95 as will the £12 overdraft buffer .
These changes will also apply to the Everyday Current Account.
Reza Attar-Zadeh, head of retail products, at Santander, said: “Although we are making changes, the new interest rate of 1.50% on the Santander 123 Current Account is a very competitive instant access rate on balances up to £20,000, which means customers can earn up to £298 per year in interest, plus cashback, for an account fee of £5 per month. Customers will continue to have access to preferential 123 World offers and, on top of this, they can earn more cashback using our Retailer Offers.”