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Santander to cut 123 current account interest AGAIN - and it'll now pay 0.3%

Santander branch image

Santander customers with the bank's popular 123 current account will see the interest paid on savings drop to just 0.3% from 12 April. It's the third time the bank has cut the account's rate cut in less than a year and means holders are better off switching.

Santander's 123 account was among MoneySavingExpert.com's best buys with a rate of 1.5% on savings up to £20,000 at the start of last year. But from 5 May 2020, this rate was cut to 1%, followed by a further drop to 0.6% from 3 August. At the time, MoneySavingExpert.com founder Martin Lewis pronounced the account "deader than a dead duck" – and the rate is now set to get even worse.

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.

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

When Santander cut rates in 2020 Martin Lewis, founder of MoneySavingExpert.com, gave the following statement, which still stands today: "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. It's now 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).

"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."

I'm a Santander 123 customer – what's happening?

The rate on the 123 current account will drop from 0.6% to 0.3% for new and existing customers from 12 April, while the monthly fee to hold the account will also fall from the same date for new and existing customers from £5/month to £4/month. However, the reduction of the monthly fee only amounts to a 20% cut, compared to a 50% drop in the level of credit interest customers can earn.

You can continue to earn between 1% and 3% cashback on certain bills paid by direct debit up to a maximum of £15 a month.

There will be no change to Santander's 123 Lite account, which offers the same level of cashback on bills for a lower £2/month fee – though without any interest.

How can I beat the cut? 

The top easy-access savings account currently pays 0.5% interest – slightly lower than the 0.6% the 123 account currently offers. Yet the monthly fee means you can still easily beat the 123 account for cashback and interest, if you're willing to move your money. Here's how:

  • First, get the SAME 1% to 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/month). It doesn't pay any interest, but you can replace this with easy-access savings (see below).

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

  • Then, switch to 0.5% easy-access savings. While rates have dropped sharply in the past few months, you can still earn up to 0.5% from an easy-access account. Obviously we don't know what level savings rates will be at in April, but if you moved the full £20,000 from your Santander account to one paying 0.5% today, you'd lose around £1.67 in interest per month – easily outweighed by the £3/month saving in account fees if you also downgraded to the 123 Lite account (£2/month saving after the April fee change).

    The joint top 0.5% payers are app-only Atom Bank and online provider Aldermore. Full information and more options can be found in our Top Savings guide.

    Alternatively, if you're happy to open a new current account and have less to save, Virgin Money offers 2.02% interest on credit balances up to £1,000, and also comes with a linked easy-access account paying 0.5%. Crucially, there's no monthly account fee, you don't need to switch to get the interest and there's no minimum pay-in. So you can treat it like a normal savings account and leave money sitting there to earn interest.

    If you do want to switch, Virgin Money is currently offering newbies to its current account a free 15-bottle case of wine from Virgin Wines. For full info on this, see our Best Bank Accounts guide.

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