Is this the DEATH KNELL for bank accounts with BENEFITS?
As Santander copies its rivals and slashes perks on its wildly popular 123 account...
SANTANDER is slashing the benefits of its flagship current account in a move that could deprive millions of customers of as much as £100 a year. The Spanish bank, which has almost four million current account holders, will cut the rate on its 123 account from 1.5 pc to 1 pc in May, and cap its unlimited cashback offer to just £15 a month.
At the same time, it has become the latest bank to announce it will be hiking its overdraft rate to 39.9 pc from April.
The move comes as big banks are scaling back their current account rewards — a string of its rivals have also recently cut interest rates and cashback deals.
When Santander launched the 123 account in 2012, it quickly became one of the most popular accounts on the market, offering a decent interest rate on large balances and up to 3 pc cashback on household bills. It was recommended as a best-buy by Money Saving Expert’ s Martin Lewis and advertised on TV by Olympic athlete Jessica Ennis-Hill, and more recently TV presenters Ant and Dec.
Experts last night accused Santander of exercising a ‘calculated and cynical’ plan, taking advantage of customers who are unlikely to change banks.
Martin Lewis says: ‘Santander 123 is now a dead duck current account. There’s little reason for anyone to stick to it.
‘The irony is that, until this announcement, Santander 123 was primed for a comeback. For years it was one of my top picks for savers. In fact, only last week I suggested those who wanted easy-access savings and had big bills to check it out.’
James Daley, founder of campaign group Fairer Finance, says: ‘Santander’s 123 account was one of the best-value and most innovative accounts on the market when it launched eight years ago.
‘But, over the past few years, Santander has slowly whittled away at the account’s value — raising fees, cutting interest rates, and now capping rewards. It’s hard not to see it as a calculated cynical plan. Current account customers are well known to be reluctant switchers — and very few of those who were brought in by the attractive features of the 123 account will move their business elsewhere.’
THE move is the latest in a line of cuts suffered by current account customers elsewhere. Last November, Nationwide stopped paying interest on its FlexPlus packaged bank account. Previously, it paid 3pc on balances up to £2,500.
In July, TSB cut the rate of its Classic Plus account from 5 pc to 3 pc on balances up to £1,500. This reduced the maximum annual interest customers could earn from £75 to £45.
NatWest is scrapping its 2 pc cashback on household bills from February. Instead, the bank will now pay Reward Account customers £1 a month if they log on to their account via its mobile app, and a further £4 a month if they set up two direct debits, so capped at £5 when it was previously unlimited. It also costs £2 a month.
Over the years, Santander has chipped away at its current account perks. In January 2016, it increased its £2 monthly fee to £5, leaving up to a third of customers paying more in fees than they received back from the bank each year.
And, in November that year, it halved its rate from 3pc to 1.5pc. The difference in returns was substantial. Customers with a £20,000 balance went from earning £540 a year to £240, after account fees.
But, from May, 123 customers and those with Santander’s Select and Private current accounts will also see rates reduced from 1.5pc to 1 pc on deposits of up £20,000.
This will cut the maximum annual interest earned from £240 (minus the £5 monthly fee) to £140. A 123 account holder with a balance of £2,500 will earn £25 a year under the new cuts (and this doesn’t take into account the monthly charge). By contrast, Nationwide’s FlexDirect account pays 5 pc on balances up to £2,500 as long as customers pay in £1,000 a month. This would yield £125.
Santander is also capping cashback for 123 account holders at £5 in three categories, so they can earn a maximum of £15 a month. Currently, customers can earn 1 pc on council tax and water bills plus Santander mortgage payments. So someone with a monthly £150 council tax bill would get £1.50 back from the bank.
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