Time to ditch Santander's 123 current account?
Santander 123 current account customers will see their account fee rocket from £2 a month to £5 a month – a 150% hike - from this month. As a result, the annual cost of the account will jump from £24 a year to £60 a year.
What should I do now?
Have a proper sit down and take a look at what you're getting through the account.
The good news is that the interest and cashback perks will remain the same so your bonus earnings won't change.%VIRTUAL-ArticleSidebar-banking-guide%
You'll still get 3% interest on balances between £3,000 and £20,000, but it'll only really be the account holders with bigger pots who still benefit. That's the bad news.
Say you have a £3,000 balance. You'll earn £89 a year in interest, but with the £60 fee you will only really be pocketing £29. If you have £19,000 however, you'll get £562 in interest. Even after the account fee is taken off, that's still £502 more than you had before. Bear in mind that both of these sums are totalled after tax.
For those on smaller pots, you only get 1% interest on balances from £1,000 to £1,999 and 2% on balances from £2,000 to £2,999 which is paltry compared to what you could get from other banks.
Indeed a balance of £2,500 on the 123 Account would leave you £10 poorer after the fee is taken off!
What about cashback?
The cashback you earn may make up for it, though. There's up to 3% available on household expenses: 1% on water, Council Tax and Santander mortgage payments, 2% on gas and electricity bills and 3% on phone, broadband, mobile and TV bills.
If you're in a Band D area, you'll be paying £1,468 a year (about £122 a month) in Council Tax. That breaks down to £12 a year in cashback with the 1% perk. Based on an average monthly bill of £92, you'll get £22 pounds back on your household energy. Add on a broadband, phone and TV bill of £38 a month, and you'll make a further £14 with the 3% cashback.
In this example, that's £48 cashback, so still not enough to cover the full cost of the fee. If you have a balance that will earn some decent interest, then you may still be in the positive from the 123 account, but what's clear is that it will be a much less lucrative account for many.
Check out Santander's 123 Current Account Calculator to see how much you could earn.
To get the full benefit you need to deposit a minimum of £500 a month and have at least two active direct debits coming out of your account.
Where to get more
If you are looking for a high interest rate, then you could go with a Nationwide FlexDirect Accountwhich gives you 5% interest on balances up to £2,500, when you deposit £1,00 a month. But it does fall to 1% after the first 12 months.
Alternatively, you can get 5% on the TSB Classic Plus Account but on a slightly smaller balance of £2,000. The real draw is this isn't a teaser so you won't be dropped on to a disappointing rate after an introductory period.
For bigger balances, Tesco Bank gives you 3% on pots up to £3,000, the Bank of Scotland Classic Current Account with Vantage pays 3% on balances from £3,000-£5,000 and Lloyds Bank pays 4% on balances between £4,000 and £5,000.
If you just want cashback, then remember that some accounts pay you a healthy switching bonus. First Direct is offering a £125 incentive while Halifax is paying £100 if you move your bank account over.
However, probably the best replacement is the NatWest or RBS Reward Account, which pays a flat rate of 3% cashback on a series of household direct debits.
The Co-operative Bank is also offering the chance to earn up to £5.50 a month in cashback via its current accounts.
Compare current accounts and see if you can get more from your bank
