Are customers who shun Santander 123 missing a trick? How to pick the best reward account

27 July 2016

More than 38,000 people left their Santander bank account in the final quarter of 2015

The number of customers switching to Santander’s popular 123 current account has plummeted, but Which? analysis suggests the account is still a good choice for some.

The Spanish-owned bank gained just 3,592 current account customers through the Current Account Switch Service in the last three months of 2015 - a 93% decrease from the previous three months, when the bank gained 51,002 customers.

The change followed the announcement in September 2015, that the monthly fee on its Santander 123 Current Account would rise from £2 to £5 month from January 2016. 

In total, 38,130 people left their Santander current account in the final quarter of 2015, more than any other bank.

Halifax (31,181 extra customers), Nationwide (26,150), and TSB (9,604) were the big winners from the previous quarter.

The graph below shows the switching figures for all the major banks.

Find out more: bank accounts - more than 70 accounts rated

Is it worth switching? 

There are four main current accounts that consumers have been flocking to in recent years. They are with Santander, Halifax, Nationwide and TSB.

The best account for you depends on the size of your balance and the way you use the account. Although Santander upped its fee from £2 to £5, our analysis shows that if you have a larger balance - of around £7,340 - and can pay in £500 a month or above – Santander offers you more than the other popular choices. The popular 123 account offers 1% interest on balances over £1,000; 2% on balances over £2,000 and 3% on balances over £3,000. It also offers up to 3% cashback on household bills. 

Nationwide and TSB (which both have current accounts paying 5% interest in the first year on balances up to £2,500 and £2,000 respectively) and Halifax all gained ground on Santander at the end of last year.

Both Nationwide’s FlexDirect and TSB’s Classic Plus current accounts are free to use, compared with Santander’s 123, which costs £60 per year. This means that if your balance is, say, £2,000 in either the Classic Plus or FlexDirect, you’d receive £100 in interest in the first year (5% of £2,000). With Halifax, if you can pay in £750 a month, you'll get an extra £5 a month in interest.

The Santander 123 account only offers 1% AER on balances between £1,000 and £2,000, and 2% AER on the total, on balances between £2,000 and £3,000.  So, if you deposited £2,000 you’d lose money when factoring in the £60 fee (it would cost you £20 overall).

However, if you have more than £3,000 in Santander’s 123 current account and pay in £500 a month or more, the interest (at 3% AER) outweighs the £60 per year fee. So, annual fee included, for a yearly balance of, say, £5,000, the Santander 123 gives you £90. If you have a balance of £7,340, Santander will give you a better return than Halifax. These figures also don’t take into account the cashback (up to 3%) you receive from monthly bills through the 123 current account.

Some accounts reward you simply for switching. Halifax’s Reward Current gives new customers £100. This is likely to beat the interest you’d receive from most current accounts with balances under £2,000. It also gives an extra £5 per month as long as you deposit £750 or more each month.

The table below is based on paying in £1,000 a month.  

Annual interest earned on current accounts
 Interest minus fees earned on £1,000Interest minus fees earned on £2,000Interest minus fees earned on £3,000Interest minus fees earned on £5,000Interest minus fees earned on £10,000
Santander 123a-£50-£20£30£90£240
Halifax Rewardb£160£160£160£160£160
Nationwide FlexDirectc£50£100£125£125£125
TSB Classic Plusd£50£100£100£100£100

Table notes
Figures are for the first year only. These scenarios don't take into account other rewards and cashback options. aYou must pay in at least £500 a month and set up at least two direct debits to qualify for interest. bYou get a £100 reward for switching and £5 each month you stay in credit. To be eligible for the monthly reward, you must pay in at least £750 each month and set up at least two direct debits. cYou must pay in at least £1,000 a month to qualify for interest. Interest rate drops from 5% AER to 1% AER after 12 months. d To qualify for interest, you must pay in at least £500 each month, and register for internet banking and paperless statements.

 There are two steps to figuring out which account is best for you.

How do bank switching figures compare over time? 

The Current Account Switch Service was launched in 2013 to make it easier for customers to get a better deal from their banks. Since then, Santander has been the highest net gainer of accounts, with 401,126 customers switching to the bank. Halifax is second (305,987 extra customers), and Nationwide third (97,654 extra customers).

The graph below shows how the major banks' switching figures compare over time.

In response to the drop in customers switching to this account, Santander launched the 123 lite current account, which costs just £1 a month and still offers cashback on household bills – though doesn’t give interest on credit balances.

Find out more: switching your bank account - all you need to know 

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