UPDATE In 2016 Santander have made major cuts to the interest rate and cash back benefits for their 123 current account, cutting its main interest rate from 3% to 1.5%.
When I originally write the article below in 2013, it was one of the best deals on the market! But is it still? There are now four million people with one of these accounts…
Martin Lewis has looked at this in detail and unfortunately there isn’t a simple answer – it depends on how large a balance you keep in the account and how much cash back you get.
Switching is now easier
Banks have introduced a new Switch service which aims to make it easier, faster and less error-prone to switch current accounts. The main advantages of this are that:
- all banks operate an identical service
- it will complete in 7 days
- your new bank sorts out all problems, so you have a single point of contact
- for 13 months after the switch any payments or debits that would have gone to your old account will be sent on to your new account
- you are guaranteed to be refunded any interest or charges that happen if something goes wrong.
So if you have been putting off switching by the thought of the endless hassle and problems, this might be a good time to look at the range of current accounts around and see if one would be a big improvement on your existing current account.
Santander’s 123 account
If like me you are struggling to find easy access savings accounts that pay more than a pathetic rate of interest, you should take a look at Santander’s 123 current account and consider keeping a very large balance in there:
- pays 3% interest on balances between £3,000 and £20,000
- gives cashback on household utility bills – 1% on council tax and water rates; 2% on electricity and gas bills; 3% on mobile, phone, broadband and TV bills.
- you have to pay in £500 a month and set up at least 2 direct debits, so you can’t use it as a pure savings account
- there is a monthly charge of £2 a month. This is easily outweighed by the interest if your balance is over £3,000, even for a higher-rate tax payer.
- it’s Santander, the bank with the worst reputation for customer service in Britain. To be fair, this seems to have been improving a lot over the last year, but it’s hard to forget.
- the overdraft charges are huge. This is not a good choice unless you are sure that you will always be able to leave a large balance in there.
So am I going to switch current accounts? Well no, as a CAB advisor it’s really hard for me to ignore Santander’s poor customer service reputation. But I have decided to put my toe in the water and open a 123 account. I am going to treat this as a savings account except I will use it to pay my council tax and utility bills. If I like the account and the customer service, then I will move over fully later.