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From 5th May 2020 you’ll earn less interest and potentially less cashback on the Santander 123 and 123 Lite accounts. Are they worth sticking with?

Following news that the Natwest and RBS Reward accounts will change in February 2020, Santander has also revealed that it too is changing the rewards on its popular current account.

Here’s what’s changing, and my take on whether it’s worth sticking with, or indeed switching to.

What’s changing on the Santander 123 account?

From 5th May 2020, there are two key changes to the account. First, the interest rate on savings will drop from 1.5% to 1%.

Second, each cashback section will be limited to £5, meaning the most cashback you’ll earn each month can be £15. This cap also applies to the 123 Lite account which already doesn’t offer interest on savings. The existing £5 and £1 fees respectively will remain.

And as with all banks there’s a new simplified, yet expensive, overdraft rate of 39.9% AER.

How will this affect your savings?

Well, it’s a cut of 0.5%, on balances of up to £20,000. However, since you’re paying £5 for the privilege I’ve always said you’re better off putting your savings elsewhere and paying £1 for the 123 Lite account instead.

So yes you’ll earn less money in this account, but even before the change you’d be better off keeping it elsewhere. Hopefully this means you won’t see much of a change.

How will this affect the cashback on your bills?

The £5 cap sounds harsh at first. But actually it’s very generous for most customers. I think the only people who are going to really lose out are those with Santander mortgages.

With both accounts you get cashback as follows:

  • 1% on water bills, council tax and Santander residential mortgages
  • 2% on gas and electricity, Santander home insurance and Santander life protection
  • 3% on mobile phone bills, landlines, broadband and paid for TV

Now to reach the £5 cap on each of those you need to spend the following each month:

  • 1% cashback = £500 a month before the cap is reached
  • 2% cashback = £250 a month before the cap is reached
  • 3% cashback = £167 a month before the cap is reached

So most of us are unlikely to spend above these levels on our day-to-day bills. There’s a chance you’ll pay more than £167 a month on the 3% cashback level, but if you do that’s a sign you’re paying too much for your TV and phones.

Sadly it’s those with Santander products that will see their cashback reduced. Until now, mortgage customers could earn that 1% on the first £1,000 of their monthly repayment, worth £10.

To see how your cashback will change, there’s a handy calculator to help you work out what you’ll earn

Should you ditch Santander 123 or 123 Lite?

I think if you’ve got the full 123 account you absolutely ditch it. There’s no point paying £5 a month for poor interest. Instead, you’re better off with the 123 Lite account at £1 a month and still earn your cashback. It should be simple to either over the phone or in branch.

123 Lite customers should stick with it as you’re still earning money on your bills you wouldn’t get elsewhere, especially with the Natwest Rewards account cutting this feature in February. 

Should you switch to or open a Santander 123 Lite account?

Now Santander are the only bank to offer cashback on household bills I think EVERYONE should have the cheaper 123 Lite account. It’s free money for things you are already going to paying for.

However I wouldn’t switch. There’s not currently any switching incentive with Santander, and you don’t need to switch to get the cashback.

Instead I’d open up a new account from scratch. You can then either manually transfer your direct debits, or probably easier go for a partial switch. This means you can choose what you move over, and importantly means you can keep your existing account open.

If you aren’t bothered about this old bank then you can still switch it. But instead I’d move over to one which pays you £100 or more as a bonus.

Right now that includes £175 from HSBC and £100 from First Direct. Plus both Nationwide and TSB offer £100 referral bonuses. You can see the latest offers in my regularly updated list of bank incentives here.


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