Banking giant Santander is ditching the £100 sign-up bonus and 0% overdraft on its market-leading current account, replacing it with a new deal offering cashback.

Since this article was published, the Santander account now offers 1% cashback on Santander Mortgage payments, and a 0% arranged overdraft for 4 months on account opening. The calculations below have been updated.

The new Santander * 123 current account will pay money back on household bills and has a potentially top savings rate, but comes with a £24 annual fee.

Our research shows the account, which is available from Monday, is only best for high spenders, or those with a Santander Mortgage.

It replaces the Preferred account, which will only be available until Sunday night. That has a £100 cash incentive, 0% overdraft for the first year and pays 5% interest on credit balances up to £2,500.

The 123 current account

Here are the key features of Santander's 123 current account:

  • Fee. It costs £2 a month, £24 a year.
  • Cashback. It pays 1% cashback on water, council tax bills and Santander mortgage payments (max £1000 mortgage spend/mth), 2% on gas and electricity and 3% on mobile, home phone, broadband and paid-for TV packages.
  • Interest. It pays 1% AER if the balance is £1,000 or over, 2% AER over £2,000 and 3% AER over £3,000, which is comparable with a top savings account. No interest is earned on balances below £1,000 or above £20,000.
  • Funding requirement. Customers must pay in a minimum £500 each month.
  • Overdraft. It has an arranged overdraft fee of £1 per day capped at 20 days on each monthly statement, and an unarranged overdraft fee of £5 per day. All account fees are capped at £95 per monthly statement.

You can upgrade from any standard Santander current account to the 123 account from 12 March.

Is it any good?

We worked out a typical bill payer would earn £49 in profit per year, after the fee, excluding interest .So it would take two years before they could earn enough to make up for the lost £100 bonus.

But if they also had a Santander mortgage, and were repaying £500 a month, the cashback would leap to £115, making this a better proposition for those customers than other accounts.

Typical customers, or those without a Santander mortgage, could be better off elsewhere. First Direct*, for example, offers a £100 introductory bonus on its 1st account.

Alternatively, Halifax* offers £5 per month (£60 a year) regardless of spending on its Reward account, though both accounts have a minimum funding requirement of £1,500 and £1,000 a month, respectively.

However, for those with big bills and big savings, or a Santander mortgage, Santander's 123 account could be a moneyspinner as there's no cap on the cashback (except mortgage cashback), as the table below shows.

Santander 123 – cashback earned

Type of bill Cashback % Annual cashback
Low bills Typical bills High bills
Council tax
Santander M'gage*
Mobile phone
Home phone
Paid-for TV
TOTAL after fee

*Santander mortgage payment cashback is capped at £10/mth.
Amounts rounded. Based on typical bills provided by firms & government bodies.

Martin Lewis, creator, says: "This Santander account should be applauded for innovation, but in truth while it's pitched as an 'Everyman' deal helping out bill payers, it only adds up for those with higher spending and higher savings - or those with Santander mortgages.

"These unsurprisingly tend to be those with higher incomes and bigger homes. Take the savings rates — those with less than £1,000 get no interest, but it's a whopping 3% if you've £3,000 to £20,000.

"Contrast this with the Halifax and First Direct alternatives. Not only that, while First Direct has come top of every one of our customer service polls, Santander has always languished bottom.

"However, for those who budget using 'bills' accounts, this is a corker — simply shift the right amount of cash in (a minimum of £500 a month) and pay bills from here to bag the gain."

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