Cashback + Interest: The Santander 123 Current Account

Mar 3, 2012   //   by Keith McDonald   //   Banking and Savings Accounts  //  4 Comments

Santander 123 current accountSantander’s reputation for lateral thinking and adding creativity to the marketplace precedes it.

Last year, the bank released an up-front interest bond which was proudly described as ‘revolutionary’. This year they may be on the trail of something similar as they come to launch the new 123 Current Account on Monday.

The market for current accounts has grown stagnant in recent years. Focus has now switched almost entirely to overdraft facilities, to the point where most active current accounts do not offer any interest at all.

The new 123 current account breaks the mould by returning the attention back to interest, while also offering cashback, a feature not usually associated with current accounts.

Santander 123 Current Account: Cashback

Let’s look at the cashback offer first. The current account offers cashback on the following household bills when paid by direct debit:

  • 1% cashback on water bills, council tax, and Santander mortgage payments.
  • 2% cashback on electricity and gas bills;
  • 3% cashback on home phone, mobile phone, broadband and paid TV packages.

Like Santander’s cashback credit card, which offers 1% on supermarket spending and 3% at petrol stations, this is not a cheap gimmick offered on peripheral areas of spending. Rather, it is likely to offer substantial savings.

Some Cashback Estimates

Cashback OfferMeasureCostCashback
1% WaterAverage Household Bill*£388 pa£3.88
1% Council TaxAverage Band D£1,456 pa£14.56
2% UtilitiesAverage Energy Bill**£1,315 pa£26.30
3% TelecomsiPhone 5 Contractc. £384 pa£11.52
3% TelecomsBroadband / Digitalc. £360 pa£10.80

[* – Ofwat] [** –]

Account holders must fund the account with £500 per month to qualify for cashback, but there are decent savings to be made as a result. As a conservative estimate, you’ll get back around £67 a year just by paying your everyday bills.

And those with a mortgage from the bank could easily double this sum. An account holder with a mortgage payment of £750 per month will receive £90 per year in cashback from this alone. That’s over £150 per year in total.

It’s a creative current account that offers the benefits of a cashback credit card but without the burden of high interest rates that accompany one.

Santander 123 Current Account: Interest

Current accounts have offered little to consumers in recent years, and most pay no interest whatsoever. The Santander 123 account is markedly different:

  • 1% AER on the entire balance when it reaches £1,000.
  • 2% AER on the entire balance when it reaches £2,000.
  • 3% AER on the entire balance when it reaches £3,000 (up to limit of £20,000).

Therefore, with a sizeable balance, the Santander 123 current account also acts as a credible savings account.

The Santander current account requires a minimum monthly deposit of £500 to qualify for cashback (and £1,000 for interest), and it costs £2 per month to operate. For this, it offers a significant level of cashback, plus interest rates that compete with the best instant access savings accounts currently on the market.

An average balance of £4,000 across the year will pay £120 in gross interest. There are few instant access savings products of any kind that can better this.

The downside to this account is the lack of competitive overdraft facility. But there is no shortage of these on the market already. Santander’s lateral shift identifies a gap in the market for consumers in credit. These customers stand to benefit enormously from Santander’s prolific new offering, the 123 current account, which may awaken a dormant and uninspired market for current accounts.

The 123 Current Account launches on Monday 5th March 2012.

(Last Updated: January 2014.)

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  • Andrew

    After what i just read this is an account that i must have! if you were to include the 123 credit card as well the savings for me will be just over £900 per annum. I know where im going on monday morning! What an account…never thought a bank will help with bills before!

  • Shelly Teezee

    Fanastic! I stand to make almost £20 a month cash on my bank account coupled with the £25 I already make on 123 credit card! Well done Santander – will be in on Monday!!

  • luke

    Wow…. truly a fantastic card i thought banks were all about making money, think i will switch to the santander 123 current account Monday!

  • Keith

    Many thanks for the comments. Just to repeat what was said on the main Which4U site: the cashback figures drawn up here are annual rather than monthly. Saving between 1% and 3% only represents small sums, but they do add up. It’s certainly possible to make £100 in cashback, I think, and If you can make what Shelly stands to make, cashback plus interest, you’ll be doing well from this account. Certainly, these are funds that no other current account is offering.

    Most impressive for me is the relevance of the cashback programme. Past cashback reward schemes have focussed on airmiles and points for expensive attractions that are rarely used or irrelevant to daily life. Earning cashback on household bills makes this account almost universally relevant, however small the sums. And Santander have thought quite carefully about avoiding overlap with the credit card scheme [cashback on grocery shopping, department stores, and petrol], to allow the two products to complement one another. You can earn returns on almost all facets of your daily spending.

    If Santander does well out of this, it won’t be taking a financial hit :) It’s spotting a gap in the market and making a plan to redress it. A large volume at a smaller margin can generate more revenue than a smaller volume at higher margins. Santander just need to back up their creative offers with strong customer service to build a strong reputation as a bank to switch to and stick with.

    Thanks for reading, and I hope you’ll continue you to follow us here and at the main Which4U site.