Hundreds of thousands of Santander customers who have its 123 credit card could see their cashback cut from next February, as the bank caps the amount of cashback cardholders can earn.

The Santander 123 credit card was a best buy for a long time, as it offered 1% cashback on supermarket spending, 2% cashback in department stores and 3% cashback on fuel or rail spending (this last capped at £9/mth) - all for an original £2/mth fee.

In September 2015, Santander announced it was capping cashback for new customers at £3/mth on each of the spending categories, and that the fee would then be £3/mth for all (though the fee increase only hit existing customers in January 2016). Santander subsequently closed the 123 card to new applications on 4 October 2016.

We explain what's happening below - for a full round-up of alternative best buys see our Cashback Credit Cards guide.

What are the changes on my Santander 123 credit card?

From 1 February 2017, anyone who took out a 123 credit card before 16 September 2015 will see cashback capped at:

  • £3/mth on supermarket spending - so it's 1% on a maximum £300 per month
  • £3/mth on department store spending - so 2% on a maximum £150 per month
  • £3/mth on fuel or rail spending - so 3% on a maximum £100 per month

The interest charged on purchase balances not paid off in full is increasing from 12.7% to 15.9%. The fee remains at £3 per month.

Santander won't say exactly how many customers are affected by these changes, but it's understood to be 100,000s.

There is one glimmer of good news for Santander 123 cardholders. The bank has lifted the 31 December 2016 end date on the card offering fee-free overseas spending - this will now be a perk of the card indefinitely.

What does this mean?

It means it will severely limit the amount of cashback cardholders can earn. Currently, the only cap for these long-standing customers is a £9/mth maximum on the 3% fuel and rail cashback - supermarket and department store cashback is unlimited.

But, after the changes, the maximum cashback will be £9/mth in total. Once the fee has been taken into account, that means that 123 cardholders will be able to get a maximum £6/mth cashback - that's just £72 per year.

Depending on what you spend, it may be possible to earn more cashback with a different card - for example, the fee-free Amex Platinum Everyday pays 5% cashback for the first three months and up to 1% after (ensure you pay it off in full every month or you'll be charged 22.9% rep APR). See the Cashback Credit Cards guide for a full help and other best buys.

What does Santander say?

As many other banks and credit card providers (including American Express, RBS, Tesco Bank, M&S Bank and Capital One) have previously done, Santander attributes the cashback cuts and interest rate rise to the "EU interchange fee cap and the increased cost of various changes in the banking industry". 

A cap on interchange fees has been in place in the UK since 9 December 2015.