Last chance to dodge Santander 123 Current Account fee hike: should you stick or switch?
If you’re wavering between staying on the 123 Current Account and switching, we’ve done the sums to help you decide.
Time is running out for Santander 123 Current Account holders that want to switch before the monthly fee rise comes into force.
From Monday 11 January 2016 customers will see their account fee rocket from £2 a month to £5 a month – a 150% hike. As a result, the annual cost of the account will jump from £24 a year to £60 a year.
What should I do now?
Have a proper sit down and take a look at what you're getting through the account.
The good news is that the interest and cashback perks will remain the same so your bonus earnings won't change.
You’ll still get 3% interest on balances between £3,000 and £20,000, but it’ll only really be the account holders with bigger pots who still benefit. That’s the bad news.
Say you have a £3,000 balance. You’ll earn £89 a year in interest, but with the £60 fee you will only really be pocketing £29. If you have £19,000 however, you’ll get £562 in interest. Even after the account fee is taken off, that’s still £502 more than you had before. Bear in mind that both of these sums are totalled after tax.
For those on smaller pots, you only get 1% interest on balances from £1,000 to £1,999 and 2% on balances from £2,000 to £2,999 which is paltry compared to what you could get from other banks. Indeed a balance of £2,500 on the 123 Account would leave you £10 poorer after the fee is taken off!
What about cashback?
The cashback you earn may make up for it, though. There’s up to 3% available on household expenses: 1% on water, Council Tax and Santander mortgage payments, 2% on gas and electricity bills and 3% on phone, broadband, mobile and TV bills.
If you're in a Band D area, you'll be paying £1,468 a year (about £122 a month) in Council Tax. That breaks down to £12 a year in cashback with the 1% perk. Based on an average monthly bill of £92, you'll get £22 pounds back on your household energy. Add on a broadband, phone and TV bill of £38 a month, and you'll make a further £14 with the 3% cashback.
In this example, that's £48 cashback, so still not enough to cover the full cost of the fee. If you have a balance that will earn some decent interest, then you may still be in the positive from the 123 account, but what's clear is that it will be a much less lucrative account for many.
Check out Santander's 123 Current Account Calculator to see how much you could earn.
To get the full benefit you need to deposit a minimum of £500 a month and have at least two active direct debits coming out of your account.
Where to get more
If you are looking for a high interest rate, then you could go with a Nationwide FlexDirect Account which gives you 5% interest on balances up to £2,500, when you deposit £1,00 a month. But it does fall to 1% after the first 12 months.
Alternatively, you can get 5% on the TSB Classic Plus Account but on a slightly smaller balance of £2,000. The real draw is this isn’t a teaser so you won't be dropped on to a disappointing rate after an introductory period.
For bigger balances, Tesco Bank gives you 3% on pots up to £3,000, the Bank of Scotland Classic Current Account with Vantage pays 3% on balances from £3,000-£5,000 and Lloyds Bank pays 4% on balances between £4,000 and £5,000.
If you just want cashback, then remember that some accounts pay you a healthy switching bonus. First Direct is offering a £125 incentive while Halifax is paying £100 if you move your bank account over.
However, probably the best replacement is the NatWest or RBS Reward Account, which pays a flat rate of 3% cashback on a series of household direct debits. For more on this cracking account read New NatWest and RBS Reward Bank Account beats Santander 123.
Find out more at The best bank accounts for cashback.
This article has been updated
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