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Revealed: Santander 123 customers face DOUBLE rate drop

Santander will cut the interest rate on its popular 123 account again in August to 0.6%, can reveal. This comes on top of a rate cut in May from 1.5% to 1% and should act as a clarion call for anyone still with the 123 account to switch to better payers – and there are still a few out there.

Update Tuesday 20 October: This story was first published in May, but we've updated it below with the current savings account rates and the changes Santander announced in the summer to its cashback and the 123 Lite fee. For full details on that, see our Santander 123 Lite analysis.  

Earlier this year, Santander's 123 account paid 1.5% interest and offered 1-3% bills cashback with no caps. But in January it revealed that from 5 May this would be cut to 1% interest, and the cashback capped.

At the time we warned that Santander 123 was becoming a "dead duck" account, and could be beaten by others, on savings interest and cashback. And on 5 May – the same day as these cuts came into effect – Santander announced it would slash its interest rate for a second time, to 0.6%. This second rate cut came into effect on Monday 3 August.

Santander has since publicised further changes – from 27 October it's adjusting the cashback offered on its 123 and 123 Lite accounts and doubling the 123 Lite fee from £1/month to £2/month. 

See our Best Bank Accounts guide for more info on accounts paying interest and cashback, and our Coronavirus Finance & Bills Help for more on banks' responses to the coronavirus pandemic.

Here's MSE founder Martin Lewis's view...

Martin: 'Santander 123 is deader than a dead duck – if that's even possible!'

Martin Lewis, founder of, said: "When Santander announced it would cut its 123 account's interest rate to 1%, I said it was a dead duck current account as there was little reason for anyone to stick to it. That cut has come into effect and it'll drop further to 0.6% – making it deader than a dead duck, if that's even possible!

"The option for Santander 123 customers is simple. Shift your savings to the top easy-access account, then if you like the cashback, instead of paying £5 a month for it, shift your current account to the Santander 123 Lite account, where you get the same cashback (but no savings interest) and pay just £1/mth (£2/mth from October) for it.

"This is all rather a shame. When the 123 account launched in 2012, it was a true game-changer, with cracking interest of up to 3% for savers, and a cashback offer to match. It stayed a table topper for about five years, yet since then the account has suffered death by a thousand (rate) cuts. Now, it's just another has-been account."

What are the changes to the 123 account? 

There have now been three sets of changes to the 123 account this year. The first were announced in January and applied to 123 account customers from 5 May, the second set applied from 3 August, and the third set will apply to 123 and 123 Lite customers from 27 October

Here's what changed on 5 May:

  • The interest rate was cut from 1.5% to 1%. Santander cut the interest it paid on balances up to £20,000 from 1.5% to 1%. The maximum interest you could earn was now just under £200 a year, compared with £300 at the beginning of the year on the 1.5% rate.  

  • Cashback was capped at £15/mth. Santander introduced a £5-a-month cap on each of its cashback tiers. This meant the maximum cashback you could earn in a month was £15, though you would have needed the right combination of bills (or very high bills) to earn this much. 

    The account paid 3% cashback on phone, broadband, mobile and TV bills, 2% on gas and electricity, Santander home insurance and life protection, and 1% on water, council tax and Santander mortgages (though this is changing in October – more info below). All bills must be paid by direct debit.

And here's what changed on 3 August:

  • The interest rate was cut from 1% to 0.6%. Santander cut the interest it pays on balances up to £20,000 on its 123 account by a further 0.4 percentage points. The maximum interest is now just under £120 a year.  

The account's monthly fee hasn't changed this year – it remains £5/mth. Santander said its interest rate changes will mean some customers no longer earn enough in interest and cashback to cover the monthly fee. If this applies to you, you should have been contacted and given alternative current account options. 

In July, it announced further changes affecting the 123 and 123 Lite accounts, from 27 October: 

  • Phone, TV and broadband cashback slashed, water bills cashback increased. Customers with Santander's 123, 123 Lite, Private and Select accounts will get a boosted 3% cashback on water bills paid by direct debit (currently you get 1%), while the cashback paid for phone, broadband, mobile and TV packages will drop from 3% to 1%. Cashback on other bills is not changing.

  • 123 Lite account fee is doubling from £1/mth to £2/mth. Again, there's no change to the £5 monthly fee on the 123 account.

I'm a Santander 123 customer – how can I beat the cut? 

Though easy-access savings rates have dropped since the changes to Santander interest were announced in May, the 123 account is still easily beatable or matchable for savings interest and cashback.

Here's how to make your cash currently in the 123 account work for you: 

  • Get a better interest rate with 0.96% easy-access savings. While many savings accounts have dropped the interest they offer following the two base rate cuts in March, you can still earn up to 0.96% in an easy-access account. If you moved £20,000 from your Santander account, you'd be able to earn up to about £190 a year on it, compared with £120 in the 123 account after the rate cut. 

    The top 0.96% payer is from Coventry Building Society, which can be opened online with £1, though it limits withdrawals to 2 a year. Full information and more options, including true easy-access accounts, can be found in Top Savings

  • Get the SAME 1-3% cashback with a lower £2 monthly fee. The Santander 123 Lite* account offers the same rates of cashback as the main 123 account (so max £15/mth) – though doesn't pay any interest. 

    To get cashback, you need to pay in £500+/mth, have two active direct debits, pay your monthly fee and log in to online or mobile banking at least once every three months.

    If you currently have a Santander 123 account and you want to switch to the Lite version, you can do this online. It's our top-pick account for bills cashback, but if you'd prefer to switch away from Santander, there are a few other accounts paying smaller amounts of cashback in our Best Bank Accounts guide.

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