Santander has lured thousands to its 123 account – then hit them with higher fees. So we answer the key question for customers 1, 2, 3 ... GO?
SANTANDER disappointed 3.8 million customers last week when it revealed a 150 per cent increase in its monthly fee for the 123 current account. The account has been growing in popularity for the past few years because of cashback rewards on household bills and interest paid on savings – backed by a major advertising campaign featuring golfer Rory McIlroy and Olympic athlete Jessica Ennis-Hill.
This helped the bank lure more than 500,000 customers away from rivals via the Current Account Switch Service, which launched two years ago to help people change bank accounts hassle free.
But from January 11 next year the cost will rise from £2 a month to £5 – or £60 a year. Fees will also rise for 1.9 million people who have the bank’s 123 credit card, from £24 a year to £36.
David Black, of independent financial analysis company DJB Research, says the price rise means the ‘allure has slipped’ for a bank account that was previously a ‘no brainer’. ‘It has been hugely suc- cessful and it was inevitable the bank would reduce its attraction in some way,’ he adds.
‘But for those who can maintain high credit balances Santander is still at the top of the chart.’
WHO SHOULD STAY
SAVERS earning the top tier of interest available – 3 per cent for balances between £3,000 and £20,000 – benefit most from Santander’s 123 account, especially when cashback from bills is added on top.
These customers should think twice before jumping ship to a rival bank such as First Direct, Yorkshire Bank and Halifax which are paying new customers more than £100 to join.
Black says: ‘Those itching to move need to think beyond the cash benefit they would gain from switching in the first year. In the second year of switching there’s no longer the boost from a welcome gift, which means the Santander account remains a top pick. An average credit balance of £8,667 would clinch it based on interest alone, or lower depending upon whether you’re also picking up any cashback.’
This beats interest on the Club Lloyds account after the fee is deducted. It assumes an account holder is a basic rate taxpayer using their personal savings allowance, which comes into effect in April next year and means interest earned on savings is tax-free up to £1,000.
Large families or people with big household bills – such as for smartphones and gas and electricity – should continue to make a net gain, but could also fare better elsewhere depending on their individual or family finances.
Santander mortgage customers who hold the 123 account are also likely to remain winners, reaping 1 per cent cashback on home loan repayments up to a maximum £10 a month – double the new fee.
WHO SHOULD GO
FRUGAL types with low household bills and who don’t use the account as a home for their savings should weigh up a move. Lower bills mean less cashback and balances under £1,000 attract zero interest.
Santander awards 1 per cent a month on council tax, water and mortgage payments; 2 per cent on gas and electricity payments; and 3 per cent on phone, mobile, broadband and TV expenditure.
Customers can check exactly how much they stand to gain or lose by using the cashback and interest calculator on the bank’s website, which has been updated to include the higher fee.
Even if cashback earned exceeds the cost, there could still be a more generous deal elsewhere. Anyone earning less than £60 a year after the fee has been deducted should consider other deals.
ALTERNATIVES
CLUB Lloyds pays a generous 4 per cent on balances between £4,000 and £5,000. Lloyds stablemate Halifax pays customers £5 a month on its Reward account regardless of how big their balances are as long as they stay in credit. There is a £125 golden hello for people switching to the bank before October 18.
Tesco Bank has removed its £5 a month fee, which applied to those who paid in less than £750 a month, and pays 3 per cent interest on balances up to £3,000, while TSB pays 5 per cent on balances up to £2,000.
Nationwide Building Society pays 5 per cent for balances up to £2,500 in a FlexDirect account, but only for the first 12 months, after which the rate drops to 1 per cent.
For those more interested in how a bank handles people rather than perks, Metro Bank, First Direct, M&S Bank and Nationwide are rated highly by comparison website Fairer Finance for their service and complaints management.
Smaller players also rank highly, including building societies Coventry and Norwich & Peterborough.
HOW YOU CAN SWITCH
THE free-to-use Current Account Switch Service has overseen the automatic switching of two million accounts since its launch in Septem-
ber 2013. Switchers need only ask their new chosen bank to initiate a transfer using the service and there is no need for them to deal with the old bank.
The changeover happens in seven working days, on a date chosen by the customer. And the balance, along with all incoming and outgoing payments such as salary and direct debits, is automatically transferred to the new account.
Under additional safeguards, any accidental deposits into or requests from the old account are redirected to the new one for a period of 36 months. And if anything goes wrong during the switch leaving a customer out of pocket, the new bank is obliged to provide a refund.
For more information about the switching service visit the website simplerworld.co.uk. Meanwhile comparison website Gocompare provides a special tool called ‘midata’ that allows people to find the best current account, taking into account a history of transac- tions with their existing current account.
This is useful for people who regularly dip into an overdraft and who can check if there are cheaper alternatives. Money Super Market, Quidco and Top Cashback all offer additional cash incentives when you switch to certain accounts via their websites.