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From 12th April 2021 you’ll earn less interest on the Santander 123 accounts, which follows changes to the cashback on offer in late 2020. Are they worth sticking with?

Santander has revealed that it is changing the interest on its popular current account for the third time in 12 months.

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 12th April 2021, the interest rate on savings will drop from 0.6% to 0.3%.

A year ago it was offering 1.5%, before a cut in May 2020 to 1% and then dropping to the current rate last August.

However, the fee is also dropping, from £5 a month to £4 a month.

There are no changes to the cashback, which was revamped last November.

How will this affect your savings?

Well, it’s a cut of 0.3%, on balances of up to £20,000. If you have the full amount saved you’ll earn £60 less a year.

Amount savedInterest at 0.6% (until 11/4/21)Interest at 0.3% (from 12/4/21)
£1,000£6£3
£5,000£30£15
£10,000£60£30
£20,000£120£60

But that is before the monthly fee. When you add it in, even at it’s reduced rate of £4 a month, you’ll need to be saving £16,000 to break even.

Of course, you will still earn cashback on your bills on top of this. Depending on how much you pay for things like electricity and Council Tax, this could realistically add another £50 or £60 on top each year.

Alternatives to the 123 account for savings

You can get up to 2.02% on your savings right now in easy access accounts, and up to 3% in regular savers. Though it’s not as simple as having all your money in a single account, you can easily beat the return from Santander.

As I wrote about a few weeks ago, you could put up to £8,000 into a combination of three accounts which would give you around £84 in interest – that’s more than you can get in the 123 with the full £20,000!

It’s worth bearing in mind that other rates could, and likely will, fall further in coming months so I wouldn’t keep chasing the highest rates when the difference is minimal.

However in this case, the fee wipes out most if not all of your interest so you are better off elsewhere.

Alternatives to 123 for cashback

There’s only one other account which will pay cashback on your bills – the Santander 123 Lite.

This version of the account doesn’t offer interest at all, and to reflect that the monthly fee is lower at £2 a month.

Factoring this in you’ll make £25 to £35 a year, more if your bills are high – though in that case I’d encourage you to do what you can do to lower them.

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

Should you ditch Santander 123?

I think if you’ve got the full 123 account you absolutely ditch it. There’s no point paying £4 a month for poor interest.

Instead, you’re better off with the 123 Lite account at £2 a month and still earn your cashback. You can change your account easily as explained below.

If you’re not bothered about that you can of course close your account, but I’d personally wait for switching offers to return so you can at least make some money.

How to change from Santander 123 to 123 Lite

It’s really easy to switch down to the cheaper 123 Lite account. You’ll keep the same account number and sort code, and your debit card and PIN won’t change either.

The fastest way to do this is via your online banking or app. It should take a few clicks. Just look for the “Upgrade account” option.

Or you can go via this form from the Santander website.

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

Since 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 to this account. 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.

However, this option doesn’t come with the Current Account Switching Service (CASS) guarantee for if things go wrong, so just double check everything has moved over OK.