Sat, 03 Mar 2012 10:16:55 GMT | By

Santander 123 cashback current account

Santander's new current account will pay you 3% interest as well as cashback on your biggest direct debits.

Santander launches new current account (© Image © Clive Gee - PA Wire)

Santander has launched an innovative new current account that offers both cashback on certain spending and a competitive interest rate.

Certainly, the new 123 current account is going to shake up the market. It's a real game-changer.

Let's start with the cashback. The idea is that you'll get some money back on your biggest direct debits.

So you'll get: 3% cashback on mobile, home phone, broadband and pay TV packages, 2% cashback on electricity and gas and 1% on cashback on water and council tax.

On top of that, you'll also receive interest if you have more than £1,000 in your account. This is how it works:

  • 1% on the entire balance, once the customer's balance is £1,000 or over
  • 2% on the entire balance, once the customer's balance is £2,000 or over
  • 3% on the entire balance, once the customer's balance is £3,000 or over

Certainly, 3% is an attractive interest rate in the current market and is competitive with many of the top instant access savings accounts. If you kept £10,000 in your account for a year, you'd earn £300 in interest.

These payments aren't part of a short-term introductory offer, so they won't be withdrawn after six months or a year (that said, the rates aren't fixed, and few things last forever).

What's more, if you have the Santander 123 account then you can get the Santander 123 credit card without having to pay the £24 annual fee.

The only real downsides are that you have to pay in at least £500 to qualify and there's a £2 monthly fee. Many Brits are understandably reluctant to pay a fee for their current account, but for many people, the return you'll get from the 123 account will be far higher than the monthly fee. In fact, some people could make as much as £400 a year from this account.

Let's look at some examples:

Example 1: Family with savings
The parents of this family keep £10,000 in their joint current account. So they'll get £300 a year in interest.

Here are the family's direct debits:

Direct debitsCostNotesCashback %Cashback value
Sky sports/broadband/Talk bundle£627 a year (52.25 a month)Includes £12.25 a month line rental3%£18.81
Mobile£720 a yearTwo mobile contracts3%£21.60
Fuel£2,200 a yearAverage UK duel fuel bill is £1,100 a year2%£44
Council tax£3,000 a yearAverage UK council tax is approx. £1,500 a year1%£30
Water£720 a yearAverage UK water bill is £360 a year1%£7.20
Total cashback   £121.61

If you add the interest (£300) to the cashback (£121.61), you'll see that the family can earn £421.61 from this account. Yes, Santander will charge £24 in fees, but the overall profit is a stonking £397.61.

Example 2: Couple with savings
This couple keeps £5,000 in their joint account. So they'll get £150 a year in interest.

They have no children, and a smaller property, so they spend less on essentials. Here are the couple's direct debits:

Direct debitsCostNotesCashback %Cashback value
Sky sports/broadband/Talk bundle£627 a year (52.25 a month)Includes £12.25 a month line rental3%£18.81
Mobile£720 a yearTwo mobile contracts3%£21.60
Fuel£1,100 a yearAverage UK duel fuel bill is £1,100 a year2%£22
Council tax£1,500 a yearAverage UK council tax is approx. £1,500 a year1%£15
Water£360 a yearAverage UK water bill is £360 a year1%3.60
Total   £81.01

Adding interest (£150) to cashback (£81.01), this couple earn £231.01 from this account. Once the account fee is paid, the profit is a very respectable £207.01.

Example 3: Single man with low savings
This man keeps £1,000 in his current account, so will earn £10 a year in interest. (Remember that you only earn 1% interest on £1,000.)

Here are his direct debits:

Direct debitsCostNotesCashback %Cashback value
Sky sports/broadband/Talk bundle£387 a year (£32.25 a month)Sky starter bundle, includes line rental3%£11.61
Mobile£0No direct debit as he's pay-as-you-go user0%£0
Fuel£600 a yearAverage UK duel fuel bill is £1,100 a year2%£12
Council tax£1,000 a yearBelow average user because single1%£10
Water£200 a year 1%£2
Total   £35.61

Adding interest (£10) and cashback (£25.61) together, this man earns £35.61 in total from this account. Once he's paid the £24 fee, he makes a profit of £11.61.

So you can see that in all three examples, people make money from this account.

It's also clear that the biggest gains tend to come from interest payments. Yes, the cashback payments are attractive and well worth having, but if you have more than £3,000 in the account, you'll probably earn more from interest.

What's more, we must stress that these payments are not part of a short-term introductory offer.

Customer service
The only other issue to consider is customer service. There's no doubt that Santander has a very poor reputation.

In recent years, the bank has been making a big effort to improve things. Extra staff have been hired and the number of complaints has fallen by a quarter. More progress is needed but at least things are moving in the right direction.

Overall, we're very impressed by the 123 account. If you're an average or big spender with more than £3,000 in savings, the case for switching to this account is compelling.

06/03/2012 05:33

You have to bank a lot of money to get back the annual fee of £24 in interest. How is it 'a real game-changer' if you have to pay a fee. This is the worst bank I have ever held an account with, I wouldn't recommend them to anyone.

They suddenly introduce other fees. This is what they offer now but they change the rules at twelve monthly intervals. I had a ‘Premium’ account with Santander and held balances of £3,000 and they paid me the massive amount of the price of a second class stamp each month. I bet they would charge more than 30p per month if I borrowed £3,000. Then after the twelve months they stopped paying the 30p interest, without notice, and started charging a £5 per month fee. I closed my Premier account and my ISA and transferred all my money to another bank. You open this account at your own risk as the only thing certain is you will pay an annual £24 fee. It's like the fantasy world of 'Skins' where the ugly ginger boy gets all the best looking girls.

 When Santander was the A&L it offered much better service.

05/03/2012 10:27
As per usual with Santandar, much made of how much you may save, in reality you never acheive this and their normal practise is that this is only for the first 12 months.
05/03/2012 12:22
Im certain once you sign up and months go by they will drop the rate.Its not fixed so they can change it when they like.Savings rates have been disgusting for years now, i wish they would improve.
10/03/2012 10:22
Always be wary of Spanish Banks. They charge you for breathing !! But they always smile why they do it.
10/03/2012 01:00
im surprised the first family have any savings! they share a tele but pay everything else twice.they should get a water meter. 
10/03/2012 00:40
first family are paying fuel and council tax twice. not good.
05/03/2012 17:09
And i dont give much hope for the Euro ,all you rich well off folk you will have big propertys and wont be able to keep them or sell them.Crying
05/03/2012 17:06
They told my mother she was £48 in debt to them ,she was stressed out by there attitude towards a lady who is 80 years old. So you have been warned.
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