Ditch to be rich? Follow the rules
It’s been the big beast of the savings world for over four years. Yet this month, Santander 123 halved its main interest rate from 3% to 1.5%. So should you ditch Santander 123?
My mailbag has been full of people asking me if this means they should ditch it, the answer…yes and no.
Five years ago the golden rule was, don’t keep any more money in a current account than needed – siphon the rest of into savings.
Santander and others turned that logic upside down, by offering high interest rates on current accounts, as a way to draw in switchers.
These new “savings bank accounts” have dominated the savings best-buy tables ever since.
Yet Santander was clearly pre-eminent, not because its rate was higher than others, some pay 5%, but because you could save £20,000 – the rest only offeredd high interest on a fraction of that.
To be eligible for Santander 123 you u need to pay a £5 a month fee, but it also pays you cashback on household bills if you use it to pay them by direct debit.
And in polls I’ve done, over two thirds of people earn enough cashback that at least matches the monthly fee, and many earn far more.
So what now it’s only paying 1.5%? Well first let’s compare it to the top easy access normal savings account, that’s just 1% so Santander wins.
SOLUTION
What about the next best savings bank account for large amounts – that’s Bank of Scotland and it pays 3% on up to £5,000 – though its rate hasn’t moved since the UK’s base rate cut back in November, so it could still cut it.
This all means “should you ditch” is a complex equation, so I’ve simplified it with two rules of thumb. 1 If you have under £10,000 saved in it and earn little or no cashback then DITCH. 2 If you’ve over £15,000 saved in it, make £5 or more in monthly cashback and want an easy solution then STICK , it’s still a winner.
If you’re in between, the more savings you have and the more cashback earnt, the better Santander is.
I go through it with tables and graphs in my mse.me/DitchSantander blog.
That also includes how those willing to play, can combine lots of the high interest accounts (eg three of Bank of Scotland’s) to earn high interest on larger amounts. Watch the live one-hour launch of the new series of The Martin Lewis Money Show on ITV at 8pm on Tuesday.