Disappointment for savers as Santander set to cut 123 Current Account rate again

Santander is chopping the rate on its flagship 123 Current Account again – this time to 0.6%.

It means a double rate drop for customers this year – as the bank made the announcement on the day that a previously-announced rate cut from 1.5% to 1% came into force.

From August 3, Santander will be reducing the in-credit interest rate for its 123, Select and Private Current Accounts, from 1% to 0.6% on balances up to £20,000.

Santander used to pay as much as 3% interest on its 123 deal – making it popular with savers looking for decent returns in the low interest rate environment. The rate was previously halved to 1.5% in 2016.

In January this year, Santander said rates would be cut from 1.5% to 1% from Tuesday May 5.

Since that announcement was made, the Bank of England base rate has been slashed to 0.1%, as part of the emergency response to the coronavirus crisis.

Santander said its latest rate cut is a response to this move – and that it also takes account of the ongoing financial impact of regulatory changes in the banking industry.

Rachel Springall, a finance expert at Moneyfacts.co.uk, said Santander’s latest announcement follows similar news from other providers.

She said: “This is disappointing news for savers who use high interest current accounts to earn a competitive return on their cash.

“A rate of 0.6% could easily be beaten by a standard easy access account. Customers will now need to consider carefully if the monthly fee and cashback offer is still the best choice for them in light of the credit interest rate cut.

“In fact, customers could earn twice as much interest based on the top rate today of 1.2% from RCI Bank UK. However, interest rates are being cut across the market, so there is no telling how long the top rates will last. It is crucial savers act quickly to snap up the best deals.

“So far this month, Nationwide has cut its 5% rate down to 2% on its FlexDirect account (and) TSB has cut its rate on the Classic Plus in half from 3% to 1.5%.”

Santander said there will be no changes to the cashback benefits provided on its 123, Select and Private Current Accounts, with customers able to earn a total of £180 per year in cashback on their household bills paid through these accounts.

There will also be no change to Santander’s monthly account fee, which will remain at £5 per month. This means that, in total, customers could receive up to £299.60 per year in interest and cashback for a £5 monthly fee, equivalent to £60 per year.

Susan Allen, head of retail banking at Santander, said: “While we have had to make a difficult decision in light of the current interest rate environment, our 123 Current Account continues to provide good ongoing value to customers.”

Santander will be contacting customers in May to explain the change.

The bank said it will also be contacting a “small number” of those for whom the change to the interest rate may mean their earnings on the account no longer meet the monthly fee.

These customers will be provided with alternative current account options; for instance, the 123 Lite Current Account, which offers the same cashback on household bills as the 123 Current Account, for a lower fee of £1 per month.