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
|1% Water||Average Household Bill*||£388 pa||£3.88|
|1% Council Tax||Average Band D||£1,456 pa||£14.56|
|2% Utilities||Average Energy Bill**||£1,315 pa||£26.30|
|3% Telecoms||iPhone 5 Contract||c. £384 pa||£11.52|
|3% Telecoms||Broadband / Digital||c. £360 pa||£10.80|
[* – Ofwat] [** – ElectricityPrices.org.uk]
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.)