We use cookies to allow us and selected partners to improve your experience and our advertising. By continuing to browse you consent to our use of cookies. You can understand more and change your cookies preferences here.


When you click on a retailer link on our site, we may earn affiliate commission to help fund our not-for-profit mission.Find out more.

15 Jan 2020

Santander to cut 123 current account rewards and raise overdraft rate

Find out what the changes will mean for your money

Santander will cut interest and cashback on its popular 123 current accounts and bring in a single overdraft interest rate of 39.9% EAR.

The current account changes will come into force on 5 May 2020, while the overdraft shake-up won't take place until 6 April.

This follows several similar announcements from UK banks, which have simplified their fees in order to comply with the Financial Conduct Authority's (FCA) upcoming ban on unarranged overdraft fees and daily/monthly charges.

Here, we explain what's changing, and detail every big bank's overdraft shake-up that's been announced ahead of the FCA's deadline.

Be more money savvy

Get a firmer grip on your finances with the expert tips in our Money newsletter – it's free weekly.

This newsletter delivers free money-related content, along with other information about Which? Group products and services. Unsubscribe whenever you want. Your data will be processed in accordance with our Privacy policy

How will the Santander 123 account change?

There will be interest cuts to Santander's 123, Select and Private current accounts, where balances up to £20,000 will earn 1% AER, down from 1.5% AER.

Practically, this means that if you had the full £20,000 held in the account, you'd lose out on £101.15 worth of interest over the course of a year.

At the same time, a new £5 cap will be introduced on the amount of cashback you can earn on household bills.

This will cover each of the three cashback categories on the 123 current account, 123 Lite, Select and Private current accounts - so the most you'll be able to earn in cashback is £15 a month, or £180 a year.

Currently, you can earn:

  • 1% cashback on water bills, council tax bills, and on the first £1,000 you pay towards your Santander residential mortgage payments
  • 2% cashback on gas and electricity bills, Santander home insurance premiums and Santander life insurance premiums
  • 3% cashback on mobile and home phone bills, broadband and paid-for TV packages.

It's likely that those with additional Santander products will lose out most. To get more than £5 cashback from the 1% bills category, you'd need to be spending over £500 a month - unlikely if that's only made up of council tax and water bills, but much more probable if it includes residential mortgage payments.

Similarly, relatively few people will spend more than £250 a month on gas and electricity bills to exceed the £5 cap, but it can easily be done when taking into account home and life insurance premiums.

Despite the reduction of interest and cashback, the £5 monthly fee for the 123 current account and £1 monthly fee for the 123 Lite current account will remain the same.

How will Santander's overdraft charges change?

Santander will be replacing its tiered arranged overdraft fee system from 6 April.

Currently, you're charged:

  • £1 a day for spending below £2,000
  • £2 a day for spending between £2,000-£2,999.99
  • £3 a day for spending £3,000 and over.

This will be changing to a flat rate of 39.9% EAR, which is the equivalent of around 9p per day per £100 borrowed.

The Santander Choice Account will work slightly differently; there's a lower EAR of 29.9% with interest capped at £20 a month. However, you'll have to pay a monthly charge of £10 for the account.

Will you pay more?

Santander says that six out of seven customers who use an overdraft will pay less under the new charging structure.

If you were to borrow £1,000 for 10 days under the current structure, you'd pay £1 a day, so £10. Under the new rate, you'd pay £9.32.

For larger sums you could be worse off.

If you borrowed £3,500 for 10 days under the current system you'd be charged £3 a day - so £30 in total. But under the new 39.9% EAR, you'd pay £32.64.

Overdraft changes in 2020

Santander is the latest current account provider to announce overdraft changes.

The table below shows every arranged overdraft change that's been announced so far.

ProviderOld arranged overdraft interest rateNew arranged overdraft interest rate
SantanderUp to £3 a day, depending on how much you borrow39.9% EAR
RBS19.89% EAR (14.89% EAR on Reward Black), plus £6 monthly fee39.49% EAR (19.49% for Reward Black and Premier Select)
NatWest19.89% EAR (14.89% EAR on Reward Black), plus £6 monthly fee39.49% EAR (19.49% for Reward Black and Premier Select)
Barclays£15 buffer, then charges up to £3 a day depending on how much you borrow35% EAR
Monzo50p per day19%, 29% or 39% EAR depending on your credit score
Starling Bank15% EAR15%, 25% or 35% EAR depending on your credit score
HSBCVaries by account39.9% EAR (but different account have different spending buffers)

If your bank isn't yet part of this list, there may still be changes to come as the FCA's deadline isn't until April 2020.

Keep a lookout for correspondence from your bank.

Why are overdraft fees changing?

Bank in June 2019, the FCA confirmed that new rules on overdraft fees would be enforced from April 2020.

The announcement came after years of campaigning from Which? urging the regulator to take action on excessive charges.

Under the rules, banks and building societies will no longer be able to charge more for unarranged overdrafts, and daily overdraft charges will be banned.

Banks will also have to provide annual percentage rates (APRs) for their overdrafts, as they do with loans, to make them easier to compare.

All banks and building societies will need to be compliant by April 2020.