Santander UK changes: Bank cuts interest rates on its 123 account in fresh blow to savers

From August 3, 2020, Santander will cut the in-credit interest rate on its 1|2|3, Select and Private Current Accounts from one percent to 0.6 percent on balances up to £20,000. Following the changes, customers will be able to earn a maximum of £119.603 in interest per year on their in-credit balance.

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Despite the reduction to these interest rates, Santander UK has confirmed there will be no changes to the cashback benefits provided on Santander’s 1|2|3, Select and Private Current Accounts.

Customers will be able to earn a total of £180 per annum in cashback on their household bills paid through these accounts, the bank said.

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Meanwhile, the monthly account fee will remain at £5 per month.

Santander said the change is being made as a result of the recent reduction in the Bank of England Base Rate, which now stands at 0.1 percent.

It dropped to the all time low back in March, following two successive cuts from 0.75 to 0.25, and then to 0.1.

Santander also said the move takes account of the ongoing financial impact of regulatory changes in the banking industry.

Susan Allen, Head of Retail Banking at Santander, said: “While we have had to make a difficult decision in light of the current interest rate environment, our 1|2|3 Current Account continues to provide good ongoing value to customers.

“It remains the only account that offers the ability to receive both interest on balances and cashback on household bills, meaning customers can earn almost £300 per year, for an account fee equivalent to £60 per year.

“Customers are also able to continue to make use of the exclusive benefits offered by being part of our 1|2|3 World.”

Santander has said it will contact all customers in May 2020 to explain the change, adding that the 1|2|3 calculator has been updated so customers can see what they will earn under the new pricing.

Meanwhile, the “small number” of people for whom the change to the interest rate may mean their easrnings on the account no longer meet the monthly fee will be contacted and informed of alternative current account options, Santander said.

All 1|2|3 Current Account customers will continue to have access to the benefits and features associated with their account, including preferential 1|2|3 World Offers and additional cashback of up to 15 percent through Retailer Offers.

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The Santander 1|2|3 account was originally launched with an interest rate of three percent but this was cut to 1.5 percent in 2016.

Back in January this year, it was announced that the interest earned on this account would drop to one percent AER on balances up to £20,000 from May 5.

It meant that under these changes, effective today, the maximum amount savers can earn from the account will drop by around £100 per year.

Additionally, from today, cashback on household bills will be capped, at a maximum of £5 per month for each bills category.

Prior to the changes announced in January, the account paid three percent on phone, broadband, mobile and TV bills, two percent on gas and electricity, Santander home insurance and life protection, and one percent on water and Council Tax.

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But from this month, this will be capped at £5 cap for each tier – so a maximum of £15 cashback per month.

Elsewhere in interest rates news, this week, Martin Lewis has addressed the current top paying savings accounts.

Speaking on the Ask Martin Lewis Podcast, Mr Lewis highlighted the highest interest rates currently out there for easy access savings accounts.

He said: “We start with the top easy access accounts which are Marcus and Saga at 1.2 percent. They’re actually sister banks – 1.2 percent easy access,” he said.

“No-one should have savings paying less than that unless you’re a very high rate taxpayer and then we’ll get involved in another discussion.”

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