The new Santander 123 Current Account launches on Monday 5th March, offering a rare and preferential combination of cashback and interest.
The Santander 123 Current Account: Cashback!
Among the benefits of the Santander 123 current account is the offer of cashback on the majority of all household domestic bills paid by direct debit:
- 1% cashback on water bills, council tax payments, and Santander mortgage payments;
- 2% cashback on utility bills: electricity and gas;
- 3% cashback on telecoms and multimedia: phone, mobile, broadband and paid TV packages.
How much is this worth?
Customers who opt for the Santander 123 current account can make substantial savings. With iPhone 5 contracts and broadband / digital TV packages both starting at around £30, the 3% cashback presents a welcome saving of at least £21 annually – and much more for those who pay extra for higher-spec packages.
There are also obvious benefits for those responsible for household bills. Years of above-inflation increases in utility bills have pushed the average standard tariff gas and electric bill to around £1,315 [electricityprices.org.uk]. At these prices, Santander account holders would expect to save another £26.30 annually in cashback.
The small cashback measure on council tax payments is no small sum either. With the average band D home set to rise to £1,456, current account customers could expect to save £14.56 per year on this.
The biggest gains are available for those who have a mortgage with the bank. With 1% cashback on Santander mortgage payments, account holders paying £750 per month on their home loans would receive an extra £90 per year back into their accounts.
Based on these conservative examples, the average 123 current account customer could save £65 or more on household bills, while homeowners with the bank could easily double this amount.
Some Cashback Estimates
||Average Household Bill
|1% Council Tax
||Average Band D
||Average Energy Bill
||iPhone 5 Contract
||c. £384 pa
||Broadband / Digital
||c. £360 pa
(The Santander 123 cashback credit card complements the benefits offered by the 123 Current Account by offering 1% cashback on all supermarket spending, 2% at department stores, and 3% on train fares and at petrol stations. This will prove particularly useful as petrol prices and above-inflation train fare rises continue to squeeze hard-pressed consumers.)
The Santander 123 Current Account: Interest!
At the right balance, the Santander 123 current account also acts as a decent savings account.
- 1% AER on entire balance when balance reaches £1,000.
- 2% AER on entire balance when balance reaches £2,000.
- 3% AER on entire balance when balance reaches £3,000 [up to £20,000]
It will hardly have escaped notice that instant access savings accounts have offered desperately poor returns in recent years. At the start of 2014, it had become necessary to lock funds away for at least two years before the returns would match inflation. Most current accounts - with the notable exception of Nationwide - pay nothing at all in interest.
The Santander account requires a minimum deposit of £500 per month to apply for cashback and £1,000 to receive interest. It also has a £2 per month operating fee. In return, alongside the generous cashback savings, the account offers rates of interest that outperform the best instant access savings accounts on the market.
An average balance of £5,000 across the year will return gross interest of £150. There are few instant access products of any description that will better this.
Following the launch of an up-front interest bond in 2011, which it described as ‘revolutionary’, Santander’s new 123 current account represents another lateral and market-challenging move.
Just as current accounts had started to become classified almost entirely by the calibre of their overdraft facilities, Santander has returned the focus back to credit interest in eye-opening fashion, with the unusual (and considerable) feature of cashback thrown in for good measure.
Customers able to stay in credit will benefit enormously from Santander's innovative and prolific new offering - a move which may yet force a rethink in the market for current accounts.
Last updated: 20 January 2014.