Santander customers faced with interest rate slash

Santander 123 account holders are set to be hit with an interest rate slash and cashback cap as of May 2020. 123 account holders currently receive 1.5% interest on balances of up to £20,000 and up to 3% on several types of household bills, in return for a £5 monthly fee.

The new changes, however, will see the interest rate slashed by a third to 1%, while cashback on bills will be capped at £15 a month. The cap will also affect Santander’s 123 Lite account customers and its select and private accounts.

The current cashback system involves three tiers. Account holders receive 1% back on water bills, council tax bills and Santander mortgage payments, 2% on gas and electricity bills, Santander home and life insurance premiums, and 3% on mobile and landline bills, broadband and TV packages. Under the new model, however, total cashback will be capped at £15 a month, meaning a £5 cap on each tier.

A new flat rate overdraft of 39.9% is also set to come into force from 6 April, which will replace the previous tiered daily fee overdraft model, although the bank said that customers using an unarranged overdraft under £1,065 would pay less compared to the previous tiered model.

Susan Allen, Head of Retail and Business Banking at Santander UK, said: “While we have had to make some difficult decisions in the current environment, our current account range remains very competitive. Our 123 accounts provide a range of benefits that we know our customers value and our goal is to ensure these accounts remain sustainable for the future.”