Millions of Santander 123 Current Account customers have now seen their interest rate halved from 3% to 1.5%.
This means the maximum you can earn from the account will drop from £600 a year to £300 – or £240 once you factor in the £5 monthly fee.
In January the bank hiked the monthly account fee from £2 a month to £5 a month – a 150% rise to make the account more feasible, but with the Bank of England slashing the Base Rate to 0.25%, the bank has had to take further action to curb the cost.
Previously the Santander 123 Current Account allowed you to earn 1% on balances from £1,000, 2% on balances from £2,000 or 3% on balances between £3,000 and £20,000.
But from today the account will pay a flat rate of 1.5% on all balances starting from £1 up to £20,000 for new and existing customers.
The change means the maximum you can earn from the account will drop from £600 a year to £300 – or £240 after the £5 monthly fee is factored in.
Here's what the changes mean for a range of balances in the Santander 123 Current Account earning the new 1.5% rate after factoring in the fee.
|Santander balance||Previous annual earnings from tiered 1-3% interest after yearly fee||New annual earnings from |
1.5% interest after yearly fee
As you can see anyone with a balance smaller than £4,000 stands to lose out after you factor in the monthly fee and it could be a struggle to earn enough cashback from your bills and debit card spending to make up the shortfall.
If you have £4,000 in the account, you can break even with the new interest rate and the account could provide you with a bit of profit via its cashback earning potential.
Those with balances over £4,000 still stand to make money from the 123 account with the new interest rate on offer – albeit not as much as previously.
The Nationwide FlexDirect account offers a market leading 5% credit interest on balances up to £2,500 for the first 12 months.
So you could earn £125 in one year from this account, or £250 if you open up a second joint account and have £5,000 split between the two. This is much more than what you would get by sticking with Santander.
You will need to be able to deposit £1,000 a month into the account in order to receive interest on your balance.
The account is fee free and comes with an interest-free overdraft for 12 months as well as exclusive access to deals on savings, mortgages and more.
Tesco Bank Current Account
The Tesco Bank Current Account is also a decent Santander alternative.
The account is fee free and pays 3% credit interest on balances up to £3,000, which means you could earn £90 a year.
Unlike other accounts that pay interest you can open up two Tesco Bank Current Accounts in a sole name, allowing you to put away £6,000 and earn £180 a year. Like other providers there is also the option to have one account in a sole name and another in a joint name, which has the same effect.
The account also allows you to earn Clubcard points as you spend. You can get one Clubcard point for every £4 spent at Tesco and for every £8 spent elsewhere.
Lloyds Bank Club Lloyds
The Lloyds Bank Club Lloyds account currently pays tiered rates of interest depending on how much you have stashed in your account.
You can get 1% on balances under £2,000, 2% on balances between £2,000 and under £4,000 and 4% on balances between £4,000 and £5,000 as long as you have at least two Direct Debit payments going out regularly.
However, from January 8 2017 the tiered interest system will be scrapped and instead a flat rate of 2% will be paid on balances from £1 up to £5,000.
So the account will pay up to £100 or £200 a year if you open a joint account as well. Which isn't as attractive as what Nationwide can offer.
To soften the blow, the account fee will fall from £5 to £3 a month from January for those not able to pay in at least £1,500 a month
The account will also continue to offer one free lifestyle benefit a year. You can pick between an annual magazine subscription, Gourmet Society membership or six free cinema tickets.
You can also get access to Everyday Offers which allows you to earn up to 15% cashback at selected retailers you regularly shop with when you spend with your debit card.
TSB Classic Plus
The TSB Classic Plus Account is also worth considering as an alternative to Santander.
The account currently pays 5% on deposits up to £2,000. However, the rate is being cut to 3% on balances up to £1,500 from January 4 2017.
The lower rate means you will make just £45 a year from the account or £90 if you take out a joint account as well and split a balance of £3,000 between the two.
To earn interest, you must be able to pay in £500 a month and register for internet banking and paperless statements.
You'll also get 5% cashback on your first £100 of contactless spending each month using your debit card, Android Pay or Apple Pay until September 30 2017.
How to switch
You can switch to any of these current accounts in seven working days thank to the Current Account Switch Guarantee.