Focus on: Santander’s 123 current account

Santander’s 123 account pays cashback on basic household spend including mortgage repayments, as well as up to 3% interest on credit balances. But is it all it's cracked up to be?


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We take a look at the small print to find out.

What’s the deal?

The reason Santander's account is called 123 is two-fold. First off, it pays cashback of 1% on any spend on water and council tax bills that come out of the account. From 24 September 2012, this 1% cashback extended to monthly payments on a Santander mortgage, of up to £1,000 a month. 
This cashback rises to 2% of spend on electricity and gas bills, and 3% of spend on mobile, home phone, broadband and paid-for TV packages.

The second reference to 123 relates to the way that interest is paid on the account. On credit balances of £1,000 or more, the 123 account will pay an Annual Equivalent Rate (AER) of 1% on the entire balance (so that’s from £0).

As soon as your balance hits £2,000 or more, you will earn interest of 2% on the entire balance. And if it reaches £3,000 – unsurprisingly – interest of 3% will kick in.

However, if your balance falls below £1,000 on any day of the month – even by £1 – you will earn no interest at all on the entire balance for that day. And, on the other end of the spectrum, if your balance exceeds £20,000, interest earned will not increase from the maximum 3%.


How are these benefits paid?

Both interest and cashback you earn is paid directly back into your 123 account on a monthly basis, starting from the first statement date after the account is opened.

All interest, at whichever rate applies, is calculated on a daily basis. This means that the more days of the month you have a credit balance for – and the heftier this credit balance is – the more interest you earn.

Exceptionally disciplined account-holders could even set up direct debits at the end of the month, rather than the start, to ensure their account holds the biggest balance for as long as possible.

Who qualifies?

Santander’s 123 account is open to new and existing customers and requires a minimum investment of £500 a month, which does not increase for accounts held in joint names. 

This is just half of the £1,000 minimum monthly investment that the bank’s Preferred current account required (which offered 5% on balances up to £2,500 for the first 12 months). This account has now been withdrawn from the shelves.

Santander’s packaged accounts – which required no minimum monthly contribution and offered a £100 cashback incentive for new customers to switch – are also now closed for new business.

This means the Everyday account, (a basic bank account with no minimum monthly contribution) and the newly-launched 123 account, are Santander’s only remaining current account options available to new customers.

What are the pitfalls?

The most obvious pitfall of the 123 account – but arguably not the most hazardous – is that it comes with a monthly fee of £2. However, this only amounts to 6 pence a day.

Where you could really come unstuck though, is if you fail to keep firmly in the black. Even on arranged overdrafts, you will be charged a rate of £1 a day, capped at 20 days in each monthly statement period. So, if you are overdrawn for 20 days in the month, you will pay £20 (plus the £2 fee) for the account.

If you venture into unarranged overdraft territories, things get a lot stickier as charges go up to £5 a day. And theoretically, there is no cap on unauthorised borrowing during each monthly statement period.

However, Santander offers a blanket guarantee on the 123 account that you will not be charged more £95 total fees in any one month. This cap includes ‘paid item fees’ of £5 (when the bank authorises payment even though there are insufficient funds) and ‘unpaid item fees’ of £10 (when bank does not authorise payment due to insufficient funds).

But while it’s still steep, this £95 monthly fee limit is lower than the £150 that applies to Santander’s other bank accounts. Although some of these, such as the Preferred, Premier and basic bank accounts, charge higher paid and unpaid fees in the first place of £25.

Overdraft charges on Santander’s 123 account basically mirror the higher rates set to be introduced to existing account-holders later this month.

From March 16, the daily arranged overdraft fee on its Preferred and Everyday accounts will double from 50p to £1 with a respective cap of 10 days and 20 days per statement period. Unauthorised borrowing will be charged at £5 a day with the same respective caps.

For more information on Santander’s new overdraft charges, read Melanie Wright’s article, 'Santander to raise overdraft charges'.


For obvious reasons, Santander’s 123 current account is only suited to customers who remain strictly in the black. If there is any chance of you slipping into your overdraft, there is little point applying for the account as the combined charges and monthly fee are likely to wipe out the cashback benefit.

But to get the absolute maximum from the 123 account, customers will need to retain a credit balance of at least £1,000 for the duration of the month. This may be more feasible for couples paying two salaries into a joint account.

With savings rates still at all-time lows, the 123 current account could also be a good alternative to a savings account.  Rami Aboukhair, director of products and savings at Santander, said: “The attractive in-credit rate makes it easier for customers to manage their finances by making the need to continually move money between savings and current accounts, less important.”

If you feel the account suits your circumstances, recent negative reports surrounding Santander’s customer service could still deter you from switching. But take comfort from the fact that complaints about Santander are on their way down.

According to the latest six-monthly figures from the Financial Ombudsman Service (FOS), the bank received 6,202 complaints in the second half of last year, compared to 6,434 in the first half.

What are the alternatives?

There are alternative high interest current accounts for customers who stay in the black that are worth comparing against the 123 account.

The Vantage current account from Lloyds TSB for example, pays interest at 4% AER on balances of between £5,000 and £6,000, 3% AER on balances of between £3,000 and £5,000, 2% on balances of between £1,000 and £3,000 and to 1.5% on balances of less than £1,000.

The Vantage account does not charge a monthly fee, although you will need to pay in at least £1,000 a month to qualify. Overdrafts are not available on the account.

There is also the Reward account from Halifax. This pays interest of £5 a month, so long as you make a monthly deposit of £1,000 or more and comes with no monthly fee.

It's a bad idea to go overdrawn though – charges are being hiked with effect from November 1, 2012, which you can read more about here.

You will need to take a close look at the income and outgoings on your existing current account and do your sums to see which in-credit account is best for you.

Bear in mind that if you hold one of Santander’s 123 credit cards, launched in September last year, you can profit on other spend too. The card pays cashback at a rate of 1% on supermarket spend, 2% at department store spend and 3% at petrol stations - as well as National Rail and Transport for London, up to a cap of £9.00 a month. 

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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