Santander to double 123 Lite fee and shake up current account cashback

The changes will apply to the accounts from 27 October 2020. Here's full details of what's changing:

• Phone, TV and broadband cashback slashed, water bill 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 just 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/month to £2/month. There's no change to the £5 monthly fee on the 123 account.

For full info on the best current accounts giving cashback or interest, see our Best Bank Accounts guide.

What cashback will I earn from October?

From 27 October 2020, you'll earn the following cashback on bills paid by direct debit:

• 3% back on water bills (currently 1%)

• 2% back on gas, electricity, Santander home insurance and life protection

• 1% back on Santander mortgages, council tax, phone, broadband, mobile and TV bills (currently 3% on phone, broadband, mobile and TV)

Cashback is capped to £5/mth in each tier, so you can get a max of £15/mth.

This applies to Santander's 123, 123 Lite, Select and Private current accounts. To earn any cashback at all, you need to pay in at least £500/mth and have at least two active direct debits. For the 123 Lite account, you also need to log in to online or mobile banking at least once every three months.

Will I be better or worse off after the changes?

If you're a 123 Lite customer, it's likely you'll be worse off after the changes due to the increased monthly fee.The maximum cashback you'll be able to earn on the account after fees will be £156/year, down from £168/yr at the moment.

Looking purely at cashback, it'll depend how much you spend on your water bills compared to phone, broadband, mobile and TV bills. In general:

• If you pay more for water than for phone, broadband, mobile and TV combined, you'll likely be better off. This is because cashback is being boosted for water bills and reduced for phone, broadband, mobile and TV.

• If you pay less for water than for phone, broadband, mobile and TV combined, you'll likely be worse off. For the same reason as above.

Let's take an example using average bills to see what the impact would be...

Water UK says that the average water bill is £397/yr or £33/mth, meaning cashback on average water bills will rise from about 33p/mth now to 99p/mth from October.

Figures from Ofcom suggest that typical phone, broadband, mobile and TV bills combined are about £1,260/yr or £105/mth for a family household, meaning their cashback on these bills would drop from £3.15/mth to £1.05/mth. A couple with basic usage would pay about £588/yr or £49/mth for phone, broadband and TV. Their cashback would drop from £1.47/mth to 49p/mth.

In both cases, the drop in cashback on the broadband, phone and TV bills is not matched by the increased cashback on the water bills. As these are average figures, it suggests many will be worse off after the cashback changes.

To find out how your cashback will change, you can check using Santander's cashback calculator, which has been updated to include the new cashback rates from October. To access the calculator, scroll down to 'Cashback' on Santander's page, and click to expand it then scroll down to the calculator.

Should I switch to another account to get better rewards?

Despite Santander's changes meaning many will be worse off, as things stand the 123 Lite will still remain one of the top accounts for rewards. Sadly, Santander's not the only bank to have reduced or announced upcoming reductions to its perks in recent months.

Here's how the maximum possible earnings after fees will stack up against other banks' reward schemes:

• Santander 123 Lite. You'll be able to earn up to £13/mth.

• Barclays Blue Rewards. You can earn £3/mth as standard, although this increases to £14/mth if you have a raft of other Barclays products, including a mortgage, loan and life insurance with critical illness cover.

• Co-op Everyday Rewards. From Saturday 1 August, you can earn up to £5/mth.

• NatWest/RBS Reward. You can earn up to £3/mth.

So unless you have lots of Barclays products or very small bills, Santander 123 Lite will remain a decent option. For full info on all of these accounts, including eligibility criteria, see our Best Bank Accounts guide.

If you've got a Santander 123 account, it's worth considering downgrading it to a 123 Lite, even after the fee increase.

This is because the 123 account is more expensive at £5/mth, with the main difference being it pays 0.6% AER interest on up to £20,000 (1% AER until Sunday 2 August), which can be easily beaten by the top easy-access savings account.