Santander customers with its 123 current account will have to fork out more for the account from 11 January 2016, while the bank is also upping the fee on its 123 credit card and capping the amount of cashback new card holders can earn.

We're currently working on a full analysis as to what the changes mean – sign up to our weekly email, if you haven't already, to read this as soon as it's published.

In the meantime, we explain what's happening below (also see our Best Bank Accounts and Cashback Credit Cards guides for a full round-up of the products as well as other best buys).

If you're a Santander 123 current account customer, please also complete our poll on how much cashback you you earn.

Santander to increase 123 fees

I'm a 123 current account holder

  • Fee increase. From 11 January 2016, the monthly account fee increases for both new and existing customers from £2/month (£24/year) to £5/month (£60/year).

I've got a 123 credit card

  • Fee increase. From 11 January 2016, the monthly card fee increases from £2/month (£24/year) to £3/month (£36/year). Customers who also have a 123 current account will continue to have the annual credit card fee waived for the first year, as log as they take out the credit card before 11 January 2016.

  • Overseas transaction fee waived. From 11 January 2016 to 31 December 2016, Santander will waive its foreign transaction fee on purchases – it's currently 2.95% of the transaction. This won't however apply to cash withdrawals made overseas.

For those who get the 123 credit card from 16 September onwards, cashback will also be capped at £3/month on each of the card's three spending categories; supermarkets, department stores and transport.

Existing customers will continue to earn 1% unlimited cashback at supermarkets, 2% unlimited cashback at department stores, and 3% cashback up to a maximum of £9/month on petrol, national rail and Transport for London.

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How much can I now earn with the current account?

Although the monthly current account fee will rise to £5, customers will still get the following as long as each month they pay in £500+, have two direct debits set up from the account, and pay the monthly fee:

  • In-credit interest: 3% AER interest if you've £3,000-£20,000 in the account. If you've £2,000-£2,999 it's 2%, and for £1,000-£1,999 it's 1%.
  • Cashback on some bills: 3% on phone, broadband, mobile and TV, 2% on gas and electricity, 1% on water, council tax and Santander mortgage payments (max £10/month on mortgage).
  • Arranged overdraft cost: 0% for four months after switching, then £1/day.
  • Unarranged overdraft cost: £6/day (max £95/month).

What the change means, is that while the amount you earn from bills and in-credit interest won't drop, you'll earn less overall once you factor in the higher fee.

The tables below detail how much you could earn.

How much interest you can earn in a year (after basic rate tax)
Amount in-credit Interest earned now (minus £24/yr fee) Interest earned from 11 Jan 16 (minus £60/yr fee)
£3,000 £48 £12
£20,000 £449.60 £413.60
We've used basic rate tax in these examples. Those who pay higher rate or additional rate tax will earn less.

How much cashback you can earn in a year
Amount spent on bills Cashback earned now (minus £24/yr fee) Cashback earned from 11 Jan 16 (minus £60/yr fee)
Low £47 £11
Typical £115 £79
High £226 £190
Cashback isn't taxed.

These days there are many current account deals to choose from. The two key incentives tend to be either a switching bonus or in-credit interest. You need to work out which deal is best for you.

See our Best Bank Accounts guide for the top deals if you're always in-credit and for the best buys if you regularly dip into an overdraft or go into an unauthorised overdraft.

Santander to hike 123 current account and 123 credit card fees
Santander to shake-up 123 current account and credit card fees

What does Santander say?

Santander says the fee hikes are being made due to the "increasing cost of running a UK bank". has previously warned that a cap on interchange fees – the fees card firms charge retailers to process transactions – which takes force from 9 December, could lead to credit and debit card rewards and 0% deals being scrapped as providers look to recover costs elsewhere.

Reza Attar-Zadeh, head of retail products at Santander, says: "Since launch we haven't made any changes to the fee or cashback levels on these products. However, external market factors mean we've had to make some changes to ensure the products continue to meet the needs of our customers, but also our shareholders.

"We're writing to all our existing 123 customers and making sure we help them understand the changes and the options available to them. Both products continue to offer great value and the vast majority of customers will still be able to generate a good monthly benefit despite the changes." 

Additional reporting by Rosie Bannister.

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