Savings rates are on the rise, and Santander is the latest provider to offer savers a better deal.
So, how does the new rate on Santander’s popular 123 account compare to other easy-access deals? Let’s take a look.
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Savings rates: what’s happening to Santander’s 123 account?
The savings rate on the Santander 123 account will increase on Monday 28 March. The change will mean customers will see their interest rate jump from 0.3% to 0.5%. That’s an increase of 0.2%, which is slightly less than the recent Bank of England base rate rise. As a result, some may view Santander’s hike as far from generous.
Nevertheless, savings rates are clearly heading in the right direction. Plus, there are rumours that the Bank of England will increase its base rate again this month. If that happens, borrowing costs will increase, which should place further upward pressure on savings rates in future.
Putting aside this speculation, Santander’s new savings rate means that savers with a 123 account will soon be able to earn 0.5% AER variable interest on their cash. Importantly, the maximum that can be stashed in this account is £20,000. Despite this, if you do save the maximum, you can pocket roughly £100 in interest each year.
This calculation assumes that Santander’s savings rate won’t change again in that time. Remember, it’s a variable rate, so the bank does have the power to increase or decrease it at will. However, if Santander does decrease the rate, you’ll be given sufficient notice.
What else should you know about Santander’s 123 account?
Santander’s 123 account is a bank account, not a savings account. This means you’ll need to pass a credit check if you want to open it. There’s also a £4 monthly fee to keep the account open.
To earn any interest, you have to pay at least £500 into the account each month. This excludes any payments made into the account from another Santander account. You’ll also need to pay out at least two direct debits every month.
Aside from the interest, the account pays up to 3% cashback on bills. However, to earn any cashback, you’ll have to satisfy the minimum pay in and direct debit requirements set out above.
In terms of cashback you can get:
- 1% cashback on council tax, phone bills, broadband, TV packages and Santander mortgage payments.
- 2% cashback on gas and electricity bills and on Santander home and life insurance products.
- 3% cashback on water bills.
The maximum cashback you can earn is capped at £5 each month, per cashback tier. However, you can still earn up to £15 despite this restriction. This means that if you have average bills, it’s possible that the cashback you’ll receive will more than cover the monthly fee.
You can get £140 for switching too
In addition to interest and cashback, right now Santander pays switchers to its 123 current account a cool £140.
To get the cash, you must switch to the account using the official Current Account Switch Service. You must also, within 60 days, set up at least two direct debits to be paid out of the account. You’ll also need to pay at least £1,000 into the account and log in to online or mobile banking at least once. Do all of this and you’ll get the cash within 90 days.
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How does Santander’s account compare to other savings rates available?
First things first, it’s important to remember that Santander’s 123 account is a bank account that offers other benefits aside from paying interest (such as cashback on bills, and a bonus for switching). That said, the account has a £4 monthly fee, so it won’t be for everyone.
So, if you’d rather have a normal easy access savings account, the good news is that you have other options. Right now, you can earn up to 0.82% AER variable interest through Yorkshire Building Society. However, to get this rate you’ll need to stash at least £50,000 into the account. If you don’t, you’ll earn a much lower rate of interest.
If you have less than £50,000 to save, or you simply want an alternative, then you can earn a slightly lower 0.8% AER variable with Cynergy Bank. This rate includes a fixed 0.5% bonus for 12 months. With Cynergy’s account, you can save from as little as £1. Plus, you can make as many withdrawals as you like.
For more options to help you find a home for your cash, see The Motley Fool’s top-rated savings accounts of 2022.
