SAVERS have been dealt a new blow after Santander announced plans to slash the interest rate it pays on balances in its popular 123 Current Account.Th
SAVERS have been dealt a new blow after Santander announced plans to slash the interest rate it pays on balances in its popular 123 Current Account.
The current account lets you earn up to 15% cashback on bills such as your phone, electricity and water plus you can get interest on balances up to £20,000.
But Santander has announced that the interest rate will be halved from 0.6% to 0.3% from April 12, and it could mean the amount you earn in the account no longer covers the monthly fee.
The change means the interest that can be earned on up to £20,000 will be reduced from £120 to £60.
The rate will have been cut three times in 11 months.
It was reduced from 1.5% to 1% in May 2020 and cut further to 0.6% in August.
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THERE is little incentive for banks to offer decent savings rates right.
Pricing is usually based on the Bank of England base rate, which is currently at a record low of 0.1% and could go negative.
Plus, banks can access cheap money on the wholesale markets so there is little motivation for them to attract deposits from savers.
Current accounts tend to offer better rates than savings products at the moment.
You can earn 2.02% on balances up to £1,000 with Virgin Money’s current account, giving you an extra £20.20.
There won’t be any interest paid on amounts above £1,000.
Savers need to look beyond the main high street banks to get decent rates.
The highest interest on an easy access account is currently 0.6%, according to comparison website Moneyfacts.
You can get this rate online from ICICI Bank UK’s SuperSaver.
There is no minimum deposit amount but £1,000 of savings would earn £6 in the first year with the ICICI Bank easy access account.
If you want higher rates of above 1% you would need to lock up your money for longer.
Shawbrook Bank has a 7-year fixed-rate bond that pays annual interest of 1.35%.
The product has a minimum deposit of £1,000 and the bank says this would be worth £1,098 with interest after the seven year term.
You have to consider if it is worth locking up your savings for such a long period and whether you would need to access it sooner or can get better returns elsewhere such as by investing.
Alternatively, you could put money into premium bonds with the government-backed National Savings and Investments.
You can pay in a minimum of £25 and there are monthly draws to win tax-free prizes of up to £1 million.
It has, however, also reduced the monthly fee on the account from £5 to £4, meaning you will pay £48 a year instead of £60.
But Santander said a “small number of customers” may still not be able to cover the monthly fee from the earnings in their account.
They will be contacted and offered alternatives such as the 123 Lite Current Account which offers the same cashback but no interest for a lower monthly fee of £2.
Santander blamed the latest changes on the record low Bank of England base rate, which is currently 0.1% and reductions across the market.
Susan Allen, chief executive of retail banking at Santander, said it was a “difficult decision” to cut the interest rates.
She added: “However, by lowering the monthly fee, we’ve ensured the accounts continue to provide customers with long term, everyday value, and Santander remains the only bank to offer both in-credit interest and cashback on household bills.”
It is slim pickings for high-interest savings at the moment as there is little incentive for banks to offer decent deals when they can access cheap funding on the wholesale markets.
TSB previously offered 1.5% for Classic Plus account customers but this was scrapped in December.
The highest interest rate on offer through a current account at the moment is with Virgin Money.
You can earn 2.02% on balances up to £1,000, giving you an extra £20.20.
Current account switchers can also currently get a free luxury 15-bottle case of wine from Virgin Wines worth £180 when moving their money to the bank.
You can earn also get 2% on balances up to £1,500 for the first 12 months with Nationwide’s FlexDirect current account.
This would give you interest of £30 in the first year.
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