Santander is slashing the benefits of its flagship current account in a move that could deprive millions of customers of as much as £100 a year.
The Spanish bank, which has almost four million current account holders, will cut the rate on its 123 account from 1.5 per cent to 1 per cent in May, and cap its unlimited cashback offer to just £15 a month.
At the same time, it has become the latest bank to announce it will be hiking its overdraft rate to 39.9 per cent from April.
Star treatment: Ant and Dec helped sell the Santander brand on TV – now savers say the Spanish bank has let them down with a rate cut on its 123 account
The move comes as big banks are scaling back their current account rewards — a string of its rivals have also recently cut interest rates and cashback deals.
When Santander launched the 123 account in 2012, it quickly became one of the most popular accounts on the market, offering a decent interest rate on large balances and up to 3 per cent cashback on household bills.
It was recommended as a best-buy and advertised on TV by Olympic athlete Jessica Ennis-Hill, and more recently TV presenters Ant and Dec.
Experts last night accused Santander of exercising a ‘calculated and cynical’ plan, taking advantage of customers who are unlikely to change banks.
James Daley, founder of campaign group Fairer Finance, says: ‘Santander’s 123 account was one of the best-value and most innovative accounts on the market when it launched eight years ago.
‘But, over the past few years, Santander has slowly whittled away at the account’s value — raising fees, cutting interest rates, and now capping rewards. It’s hard not to see it as a calculated cynical plan.
‘Current account customers are well known to be reluctant switchers — and very few of those who were brought in by the attractive features of the 123 account will move their business elsewhere.’
The move is the latest in a line of cuts suffered by current account customers elsewhere.

Last November, Nationwide stopped paying interest on its FlexPlus packaged bank account. Previously, it paid 3 per cent on balances up to £2,500.
In July, TSB cut the rate of its Classic Plus account from 5 per cent to 3 per cent on balances up to £1,500. This reduced the maximum annual interest customers could earn from £75 to £45.
NatWest is scrapping its 2 per cent cashback on household bills from February. Instead, the bank will now pay Reward Account customers £1 a month if they log on to their account via its mobile app, and a further £4 a month if they set up two direct debits, so capped at £5 when it was previously unlimited. It also costs £2 a month.
Over the years, Santander has chipped away at its current account perks. In January 2016, it increased its £2 monthly fee to £5, leaving up to a third of customers paying more in fees than they received back from the bank each year.
And, in November that year, it halved its rate from 3 per cent to 1.5 per cent. The difference in returns was substantial. Customers with a £20,000 balance went from earning £540 a year to £240, after account fees.
But, from May, 123 customers and those with Santander’s Select and Private current accounts will also see rates reduced from 1.5 per cent to 1 per cent on deposits of up £20,000.
This will cut the maximum annual interest earned from £240 (minus the £5 monthly fee) to £140.
A 123 account holder with a balance of £2,500 will earn £25 a year under the new cuts (and this doesn’t take into account the monthly charge).
By contrast, Nationwide’s FlexDirect account pays 5 per cent on balances up to £2,500 as long as customers pay in £1,000 a month. This would yield £125.
Santander is also capping cashback for 123 account holders at £5 in three categories, so they can earn a maximum of £15 a month.
Currently, customers can earn 1 per cent on council tax and water bills plus Santander mortgage payments. So someone with a monthly £150 council tax bill would get £1.50 back from the bank.
Gas and electricity, Santander home insurance and life protection premiums earn 2 per cent. And the bank pays 3 per cent cashback on mobile, landline, broadband and TV package bills.
Santander’s 123 Lite account offers the same cashback as the standard 123 but for a £1 charge per month — rather than £5. This makes it the best cashback deal on the market.
And you could stash excess cash in an easy access savings account. Goldman Sachs’ Marcus account pays 1.35 per cent, so a £20,000 balance would earn £270, and there are no fees.
Santander is also the latest bank to announce a hike in overdraft charges ahead of new regulations coming in April.
Customers with the 123 account currently pay £1 a day for borrowing less than £2,000, £2 a day between £2,000 and £2,999.99 and £3 a day on £3,000 and over. From April 6, these fees will be replaced with an annual interest rate of 39.9 per cent.
The bank says customers with an overdraft of less than £1,065 will pay less than they do now — around six out of seven customers.
However, because of the previous tiered system, some people could end up paying more, depending on how much they borrow and how long for.
The Financial Conduct Authority ordered banks to scrap daily overdraft fees and charge through an annual interest rate.
HSBC, and Monzo have already said they will charge fees of up to 39.9 per cent, while Nationwide hiked rates to 39.9 per cent in November.
Bank account | Old overdraft rate | New rate | Fee-free buffer? |
---|---|---|---|
Nationwide FlexAccount | 18.9% | 39.9% | No |
HSBC Advance | 17.9% | 39.9% | Yes – £25 |
First Direct First | 15.9% | 39.9% | Yes – £250 |
M&S Bank | 15.9% | 39.9% | Yes – £250 |
RBS/NatWest Select | 19.89% (plus £6 monthly fee) | 39.49% | No |
Monzo | 50p per day above £20 | 19%/29%/39% | No |
Starling | 15% | 15%/25%/35% | No |
Barclays Bank Account | Tiered rate | 35% | Yes – £15 |
Santander | Tiered rate | 39.9% | No |
Susan Allen, head of retail banking at Santander, says: ‘While we have had to make some difficult decisions, 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.’
Santander adds it will provide details of alternative accounts for the small number of customers who will no longer earn enough interest and cashback to cover the monthly fee.
THIS IS MONEY’S FIVE OF THE BEST CURRENT ACCOUNTS
Santander’s 123 Lite Account will pay up to 3% cashback on household bills. There is a £1 monthly fee and you must log in to mobile or online banking regularly, deposit £500 per month and hold two direct debits to qualify.
NatWest’s Reward Silver Account offers a £175 switching incentive to new and existing customers as well as insurance cover for European travel. Customers can also earn rewards which can be redeemed as cash or gift cards.
Club Lloyds’s Current Account offers benefits such as cinema tickets, magazine subscriptions and dining cards to current account holders. There is no cost if you pay £1,500 each month, otherwise a £3 fee applies. Must hold two direct debits to earn monthly credit interest.
HSBC’s Advance Account offers £175 cash if you switch to it. The account comes with a £1,000 starting overdraft and 2.75% regular saver account. There is no monthly fee, however you must deposit £1,750 per month into the account.
Nationwide’s FlexDirect account comes with 5% interest on up to £2,500 – the highest interest rate on any current account – if you pay in at least £1,000 each month, plus a fee-free overdraft. Both perks last for a year.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.