After rate cut, is Santander’s ‘best account’ still worth it?

TODAY, Money Mail urges savers to forget switching to Santander after it halved the interest rate on what had been considered to be Britain’s best bank account.

our analysis shows the new 1.5pc rate, added to its steep £5 monthly fee, makes it a waste of time for many of those thinking of taking up the deal.

It is worthwhile only for larger families who use the account to pay all their bills and can put at least £12,000 on permanent deposit. It could also make sense if you have a Santander mortgage, which boosts the perks you get.

By contrast, pensioners, smaller families and those living on their own can do better by opting for another current account plus an easy access savings deal.

nearly four million people have opened a 123 current account since it was set up in 2012, lured by the interest and up to 3pc cashback on household bills.

It was recommended as a best buy by Martin Lewis, of MoneySavingexpert, and advertised on tv by olympic athlete Jessica ennis-Hill and F1 driver Jenson Button.

now our figures show that other savers should think twice before joining up.

Furious customers, some of whom signed up with Santander only in the past few weeks, are already saying they’ll ditch the account. But they’ll have to be careful about which they switch to. Lloyds and Halifax are reviewing the rewards of up to 4pc on their current accounts.

James Daley, director of Fairer Finance, says: ‘Santander roped in people by offering excellent value on its 123 account. then out of the blue it hiked its monthly fee. now it’s halved its interest rate.

‘It knows many of its customers won’t have the energy to switch again in short order, so they’ll put up with the poor rates and high charges. Santander’s slogan is “Simple, personal and fair” — it’s anything but that.’

Money Mail revealed three weeks ago Santander was plotting to cut the rate on the 123 current account from the top 3 pc paid today.

the bank has confirmed the rate from november 1 will fall to 1.5 pc on balances up to £20,000.

It will still pay cashback on household bills: 1 pc on water, council tax and Santander mortgage direct debits; 2pc on electricity and gas bills; and 3pc on mobiles, phone and broadband deals. But the monthly fee wipes £60 a year off your potential return, making it hard to work out whether it’s a good deal for you.

to compare it to other offers, you have to calculate the cashback you expect to earn each month on your bills, deduct the fees — then work out if the interest will outweigh returns on rival accounts.

We did the sums for a couple living on their own and for a family of four.

even families with large bills will find the cashback only just covers the £5 monthly fee.

And for some, the account will actually cost money before any interest is earned.

We took a retired couple who each month pay the national averages of £124 for council tax, £32 for water and £86.66 for power. they use pay-as-you-go mobile phones and spend £22.49 a month for a Bt landline.

After cashback and fees, the account will leave them £15 out of pocket after a year. If the couple left £5,000 in the account, they would earn an annual £59.63. that return pales in comparison to the Club Lloyds account, which offers 4pc on balances between £4,000 and £5,000 — a top £200 a year on £5,000. nationwide’s FlexDirect current account, paying 5 pc on up to £2,500 for the first year, would return £125. And tSB offers 5pc on the first £2,000 — a year’s return of £100. Both say they have no plans to change this. you’d have to find a home for the rest of your cash, though. If you chose nationwide, you could put your remaining £2,500 in the top easy access savings account from French bank rCI, paying 1.2 pc. that would add £30 interest, leaving a total of £155. So at what point does the Santander deal become a better choice than its main rivals?

our calculations show that the couple would have to put £14,339 into the account before their interest hit the £200 mark that you get from Lloyds.

And you can boost the return on a Lloyds, nationwide or tSB account by storing the excess cash in the 1.2pc easy access savings deal. If you put £10,000 in there it would give you another £120.

Santander’s 123 account suits a family of four only slightly better.

We assumed they also pay the UK average for council tax, water and power — but also pay £70 a month for two smartphone contracts and £42 for Sky’s tv, internet and landline bundle.

After Santander’s cashback and fees, they’d have £17.88 a year. on a £5,000 balance, it will pay them a total return of £91.86 a year.

they would need to put £12,225 in their account, which Santander says is around the average, to beat the £200 interest from Lloyds.

If they put in the maximum £20,000, they would have £315.36.

the 123 account is a better deal with a Santander mortgage. Customers can earn an extra £73 cashback on its top two-year deal with a £150,000 loan at 1.59 pc.

A family of four would need to put in £7,500 to earn an annual return of £200.

these figures are just a guide, as rates elsewhere may change. But they do show that switching to the Santander account may no longer be worth it.

If you already have an account, consider your next move carefully. the Club Lloyds deal at 4 pc could be cut and Lloyds-owned Halifax may slash its £5 monthly reward.

A Lloyds Banking Group spokesman says: ‘Given changing market conditions, including the market expectation that interest rates will be lower for longer, we will be reviewing our current accounts.’

reza Attar-Zadeh, Santander head of retail products, says the new interest rate is still ‘very competitive’ on balances up to £20,000 and customers will also have access to special offers.

Use Santander’s online tool: santander.co.uk/info/123calculator to work out how much cashback and interest you’ll earn. v.bischoff@dailymail.co.uk