Santander will pay interest upfront on its new savings account in what is the latest move by banks to tempt savers, by giving them instant cash.
However, as the account is far from market-leading, it's possible to earn even more with the top-payer and still have that money in your hands from day one.
What's more, you need to hold a Santander current account to get paid the interest upfront.
While the bank offers some of the best current account deals around, it regularly comes bottom of our customer service polls due to consistently shoddy treatment of customers.
The move comes as Halifax prepares to give savers with at least £5,000 with the bank who register for a monthly prize draw the chance to win up to £100,000 from December.
The Santander deal
- The Santander Upfront Interest Bond pays 3.36% annual interest, fixed for three years. This is well short of the top 4.3% annual rate available for a three-year fix from Clydesdale and Yorkshire banks.
- The minimum deposit is £10,000.
- No withdrawals or extra deposits are allowed during the term.
- You need to hold a Santander current account to qualify for the upfront interest deal.
- Interest for the full three years is paid into the current account on the day after the term of the account begins which is either 1 December, 1 January or 1 February, depending on when you apply. It is paid minus basic rate income tax. Higher rate payers will need to make additional tax payments.
How to keep your money and earn more
While having the cash upfront is an attractive thought for many, you can still keep cash aside for yourself from your planned savings stash and end up with more overall in alternative accounts.
Martin Lewis, MoneySavingExpert.com creator, explains: "This is a clever bit of financial spin from Santander, but not worth bothering with.
"The idea that you could earn the interest upfront and therefore is of benefit is nonsense because it's a long way short of the top rate.
"To show just what a fallacy this is for most people do the maths.
"If you put £10,000 in this account, at 3.36%, you would earn £830 interest (after basic tax) in your pocket upfront - a total of £10,830
"Yet instead put £9,170 in the top-paying 4.3% three year fixed savings account leaving yourself the same £830 in your pocket and you'd earn £980 interest (after basic tax) - a total of £10,980 so you get £150 more in total and can still keep the cash upfront."
Consider the tax implications
With the Santander deal, you are taxed during the current financial year. So if you are a higher rate taxpayer now but a basic rate payer in future then you'd have been better earning the interest later.
On the flip side, if you're a basic rate payer now but higher in future, you'll benefit from getting interest upfront. Therefore, if your tax situation changes as in the latter example, Santander may be the better account.