Santander declines to comment on reports of rate cut for 123 current account


Santander has declined to comment on reports that it is considering slashing the interest rate on its popular 123 current account.

The flagship deal, which has been praised for its innovation, currently pays savers a rate of up to 3% as well as cashback on household bills paid through the account.

But the Daily Mail's Money Mail reported the bank is in talks to cut the rate to 2% - potentially costing some savers as much as £200 a year.

The 123 account has been a big "winner" of the current account switching service, which has made it easier for current account customers to ditch their old bank or building society and switch to a new provider.

Santander's deal pays a tiered rate of interest, reaching 3% on a customer's entire balance up to £20,000, when they have at least £3,000 in their account.

Money Mail understands potential changes being considered could mean the account pays a flat 2% rate, instead of the tiered rate depending how much cash people have in their account. This would be a blow to those with more than £3,000 in their account.

A spokeswoman for Santander said: "We do not comment on speculation. If we were to make a change to any of our banking products, including the 123 current account, we would write to our customers providing them with 60 days' notice."

Santander has already recently hiked the monthly fee that comes with the account. In January 2016 Santander increased the fee on its 123 account from £2 to £5 a month. Plans for the fee increase were confirmed in September 2015.

Santander made a net gain of 3,592 customers using the current account switching service between October 1 and December 31 2015, according to data recently released by payments body Bacs.

While this was still an overall gain - at a time when many other major providers were making net customer losses - it marks a much smaller increase compared with the previous quarter - when Santander made a net gain of 51,000 customers between July 1 and September 30 2015.

With expectations that the Bank of England base rate could be cut further, savers are already in for a tough time ahead, although many current accounts do still pay higher rates of interest than someone could expect to get from a traditional savings account.

For example, Nationwide Building Society and TSB both offer as much as 5% interest, while Lloyds offers as much as 4%. Halifax's current account customers can also potentially get £5 a month.

According to financial information website Moneyfacts, nearly three-quarters (72%) of personal current accounts on the market offer zero interest, although some of these may offer other perks such as cashback.

The possibility of some customers being charged for holding deposits has also been raised this week. In a letter setting out changes in terms and conditions to 1.3 million customers across NatWest and Royal Bank of Scotland (RBS) business and commercial banking, the banking group warned it might charge customers in the event of negative interest rates.

RBS has said there was no precedent for charging personal customers negative interest rates and that it had no plans to do so.