It pays to switch current accounts

Current accounts such as Santander's 123 account take advantage of customer apathy, says Natalie Stanton.

Since it launched in 2012, Santander's123 current account has attracted3.6 million customers. Although the account charges £2 a month, it offers interest of up to 3% on balances below £20,000 and up to 3% cashback on certain household bills so most people end up in the black. But that is about to change. As of January, Santander will increase its monthly fee to £5. That's a massive 150% jump in the annual cost from £24 to £60 per year. So if you've got the account, should you stay or switch?

It depends how much money is in the account. Santander currently offers 1% interest on balances up to £2,000, 2% on balances up to £3,000, and 3% on balances up to £20,000. Santander says the average balance across all of its 123 accounts is £12,500. That sum would give you £370 gross interest per year £296 after basic-rate tax. Throw in the increased fees, and this falls to £236, or 1.9% of your initial balance.

Susan Hannums of tells The Daily Telegraph: "If you have less than around £4,500, you could be better off in a standard savings account when compared to the amount of interest you would earn with Santander and the increased fee."

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But there's a bigger point here. Santander isn't the only institution to tinker with fees in recent years. This year, M&S raised the monthly cost of its popular Premium Club loyalty card by a third to £20. Last year, the Co-operative Bank put up fees on some current accounts by nearly 20%. The message is clear these accounts are designed to take advantage of your apathy, just like those that offer "bonus" interest rates that expire on a certain date.

Unless you are the sort of person who actively watches your current account deal and is ever ready to swap (you're probably not a recent Tesco survey found that 76% of people think there's no big difference between current accounts), the chances are that you'll end up being caught out when charges rise.

Fortunately, there are plenty of current accounts to rival Santander's. If your main concern is high interest, TSB's ClassicPlus account pays 5% on balancesup to £2,000, and offers 5% cashback on the first £100 of contactless purchases made each month using a debit card. Halifax's Reward account pays £5 a month regardless of balance size, as long as you stay in the black. Halifax also offers a "golden hello" of £125 for those who switch before 18 October.

For those running an overdraft, First Direct's 1st Account is a strong contender. Its customers receive an automatic £500 overdraft, the first £250 of which is interest-free. But avoid breaching it the interest rate over this is 15.9% AER.

Natalie joined MoneyWeek in March 2015. Prior to that she worked as a reporter for The Lawyer, and a researcher/writer for legal careers publication the Chambers Student Guide. 


She has an undergraduate degree in Politics with Media from the University of East Anglia, and a Master’s degree in International Conflict Studies from King’s College, London.