New 5% current account with free overdraft

Santander has just launched an impressive looking current account, but will it be enough to change the opinions of the many Santander-hating lovemoney.com readers? Robert Powell finds out...

Back in January I reported on Santander’s plans to revamp its overdraft structures and release two new current accounts. At the time, the details of these accounts were unclear – but Santander assured me they would be “competitive”.

The Spanish bank has now launched its new Preferred and Everyday current accounts and, I have to say, they don’t look half bad!

But will this offering be enough to convince the notoriously Santander-phobic lovemoney.com readership to put their bad experiences behind them and switch over to the Spanish giant?

Let’s take a closer look...

Heinz 57 account!

The Preferred Current Account is designed to replace Santander’s previous Preferred In-Credit and Overdraft accounts. Both of these deals were market leading current accounts for high interest and 0% overdrafts respectively.

The new Preferred Account is a mix of these two old accounts; with the high interest rate of the one and the 0% overdraft of the other.

You’ll get 5% AER fixed on any balances up to £2,500 for the first 12 months, as long as you pay in £1,000 each month (or shell out a £2 monthly ‘underfunding fee’). This then drops to 1% AER for balances up to £2,500 – still fairly competitive, but it is a variable rate so it could be slashed if Santander so desired.

Santander is also allowing you to hold two Preferred Current Accounts at any one time. So if you can fund both with £1,000 per month then you could earn 5% on £5,000 for 12 months – that’s a cool £200 in interest!

The account also has a 0% overdraft with no fees for 12 months – but this is only available to new customers who haven’t been with the bank for three months. This means that if you currently hold the old Preferred Overdraft Account, you’ll still receive the remainder of your 12 month fee-free overdraft but won’t be eligible for another year at 0% if you switch to the new account.

You’ll also need to set up at least two standing orders or direct debits using Santander’s switching service to be eligible for the 0% overdraft.

Santander will match your previous overdraft up to £5,000 – but if you have a sketchy credit rating, your limit may be capped. After the 12 month 0% period has finished you’ll be bumped onto the bank’s new overdraft structure and charged 50p for every day you’re in the red up to a ten day per month limit. For a complete breakdown and analysis of the new charges read Santander to penalise disloyal customers.

The Spanish giant is also still offering a £100 sweetener to anyone who applies online for this new account. But again you’ll need to pay in £1,000 per month, set up at least two standing orders or direct debits, and use Santander’s switching service to qualify for the bonus.

Simple pleasures

The second of Santander’s new releases, the Everyday Current Account, is a basic, no-frills account that has no minimum funding or standing order requirements, but also pays no interest on your balance.

New customers joining Santander (again using their switching service) will get a free overdraft for four months, after which you’ll be charged 50p per day up to a maximum of 20 days per month (tier 3 charges). But you won’t be eligible for £100 cashback if you do plump for this account.

So far, so good – but what are the downsides?

What’s the catch?

The main downside in taking out a Santander account for many people is that you’ll be forced to deal with Santander! Yes, lovemoney.com readers rarely have a kind word to say about the Spanish bank – if you don’t believe me, take a look at the comments at the bottom of this article.

And it’s not just readers who have issues with Santander – several polls have repeatedly placed the bank at the bottom of list when it comes to customer service.

So are these accounts really good enough to justify putting up with shoddy customer service? Well, it really depends what you want from your bank account.

Despite the new Preferred Account’s impressive looking interest rate and overdraft credentials, Santander isn’t actually bringing anything to the table that it didn’t already offer in its two old preferred accounts. After all, if you’re after a high interest account for your hard earned cash, chances are you won’t need an overdraft. And if you’re prone to going into the red and need a 0% overdraft, you probably won’t be too bothered about interest rates.

Santander has really just simplified its current account range by merging two of them together. But while this may make it easier for new customers to know what they’re getting, it could cause headaches for existing customers who just want reliable service and a good deal.

That’s because the new account has a ‘preferential overdraft structure’ that charges 50p per day for arranged overdrafts and £5 per day for unarranged overdrafts (up to a monthly maximum of 10 days in each case). But if you currently hold either the old Preferred In-Credit or Overdraft accounts you won’t actually get these preferential rates without switching to the new account.

And even if you do switch you won’t be able to take advantage of the 12 month 0% overdraft or £100 cashback – frustrating to say the least.

The Everyday Account is marketed as a simple and straightforward current account – and on paper it certainly looks that way. But with its poor customer service reputation, I really can’t see this new deal taking off.

Overall, in my opinion, if you’re after a high interest rate current account and can pay in £1,000 per month, you won’t find a better deal around than the Preferred Account. Likewise, if you’re not currently with Santander and want a 0% overdraft – this account is probably also your best bet.

But if you’re just after a reliable, stress-free current account you might be better off looking elsewhere.

Take a look at these other deals:

Alternatives

The First Direct 1st account is a popular choice due to First Direct's fantastic reputation for customer service. Like Santander, First Direct will also give you £100 for joining them and another £100 if you decide to leave within 12 months. But you will need to fund this account with £1,500 every month as well as change over all your direct debits and standing orders.

The Smile Current Account has no such funding requirements and offers a £500 0% overdraft for 12 months. Smile is another provider famed for their good customer service.

And finally, if you're after a current account that rewards you, the Halifax Reward Account will pay you £5 every month you pay in £1,000 - whether you're in credit or overdrawn. You'll also qualify for better rates on savings accounts and credit cards.

Head over to The top 10 current accounts for some more suggestions.

What do you think?

Is it worth putting up with rubbish customer service for high interest rates and free overdrafts?

Let us know your thoughts in the comment boxes below.

More: Get a great current account with lovemoney.com | Find a better bank... today! | Earn £60 a year from an empty current account!