Santander unleashes another 123 account cut on the SAME DAY a previous one bites, costing customers hundreds of pounds in lost interest
- Santander today cut the interest rate on 123 accounts from 1.5% to 1%
- It has handed savers more bad news with a cut to 0.6% in August
- Savers with £20,000 in the account will go from earning £302 to £120
- Santander hinted at further savings cuts in its results last week
Santander 123 customers face a double whammy of bad news today – they will receive 0.6 per cent interest on their balances from August 2020 with the banking giant revealing the move on the same day a previous change bites.
In the space of three months, it means customers holding the full balance will have gone from earning up to £302 a year in interest to £120, but the bank will continue to charge holders £5 a month for the privilege.
This means those who max out the account will receive £60 a year in interest once that is factored in.
On yer bike? The interest rate on Santander’s 123 account will fall from 1.5% to 0.6% in three months. Savers can find much better value elsewhere, even if it does still pay cashback
Santander’s 123 account paid 3 per cent interest on balances of up to £20,000 until 2016 – giving the ‘three’ element to the product name.
This was cut to 1.5 per cent and then 1 per cent today.
On 3 August this will be further cut to 0.6 per cent, although the £15 a month cap on bills cashback, the other feature of the account, will not be affected.
It means between 3 May and 3 August the interest rate paid on balances will be cut by three-fifths in three months.
The announcement comes a week after the UK arm of the Spanish bank reported a 58 per cent fall in pre-tax profits to £114million in the first three months of this year, largely due to the bank setting aside £122million to cover potential bad loans related to the coronavirus crisis.
The bank also announced 206,000 mortgage customers, a fifth of its loan book, were on payment holidays, along with 33,600 unsecured borrowers, meaning it has less money coming in over the next few months.
Santander blamed the change on the Bank of England cutting its base rate to a record low of 0.1 per cent.
It said in its results it expected its income to be further affected by the low base rate but would aim to offset that with ‘changes to deposit pricing which will take effect’ in the second half of 2020.
It initially appeared that this would be due to cuts made in May to the 123 account and several other savings accounts that would have a greater impact in the second half of the year.
This is Money asked the bank last Tuesday if that meant more cuts could be coming.
We were told that Santander would continue to review its rates against current market conditions.
Current account interest under threat
This month marks a fairly miserable month for savers who rely on current accounts to pay them a decent interest rate return.
Last Friday, Nationwide Building Society killed off the last 5 per cent savings deal in Britain when it cut the interest paid on its FlexDirect account to 2 per cent, the first time in at least eight years no savings account has paid 5 per cent interest.
When it paid 3% = £608 (£548 once monthly fee deducted)
From August 2020 = £120 (£60)
When it paid 3% = £304 (£244)
From August 2020 = £60 (£30)
Meanwhile TSB cut its Classic Plus account for the second time in 10 months on 2 May, from 3 per cent to 1.5 per cent.
While the rate from TSB still beats any easy-access savings account out there, although it only pays that rate on balances of up to £1,500, the 0.6 per cent rate paid on 123 balances from August can be beaten by 16 accounts in This is Money’s best buy tables.
While the generosity of Santander’s 123 account helped it sign up millions of current account customers and switchers since its launch in 2012, since the end of 2016 it has bled customers through the switching service, according to official figures.
In the last three months of 2019, it lost a net 9,894 customers, according to the latest switch figures.