MSE News: Should I save in Santander's 123 account or put the money in a cash ISA?

grahamji

If you are (as I am) a
non taxpaying pensioner with savings you get a full 3% from Santander ..... or if you have loadsamoney how about an HSBC Swiss account ???? (i'm joking)

henry-s

I don't want to disagree with using Santander 123 before an ISA.
But unless I've got this very wrong: Santander do not pay 3% on the whole £20,000, only on the amount abve £3,000. With lesser % on amounts up to £3,000 (I recall reflecting 123 in £thousands: £1k, £2k, £3k+).
So the overall % on £20,000 is less that 3%.
I did calculate what I thought the overall % to be, but can't remember where I put it and don't want to do it again right now as am trying to sort out a Will, Probate, struck-off solicitor named as Executor, IHT form, etc etc.
By the way I have no trouble in setting up enough direct debits: for Council Tax, phone/internet, water and other utilities (these get varying % of spend back) and another d/d to pay minimum amount on my (Santander 123) credit card (which has 0% interest for 18 months from when I took it out). And yes, I normally make sure I pay off the whole credit card balance at the end of the month. But while I am getting the 0% interest on the 123 credit card (as well as the card's cash back) I'm letting the balance build up to my credit limit which they've just increased: keeping the money to pay it off eventually in my Santander 123 current account thus earning the full 3% as it gets close to £20k.
Do hope I am doing the right thing...its nice to make money out of a bank - its usually the other way around!
By the way there is no limit to the cash back you can get for paying lots of utilities/water/council taxes by d/d (I checked): so if you pay all or some of these for say an elderly parent then at least you get the 1,2 and 3 cash back for theirs.
Keep up the great work Martin and MSE

colsten

henry-s wrote: »

I don't want to disagree with using Santander 123 before an ISA.
But unless I've got this very wrong: Santander do not pay 3% on the whole £20,000, only on the amount abve £3,000. With lesser % on amounts up to £3,000

You have got it wrong: as soon as you have more than £3K in the account, you will get 3% AER / 2.96% gross on all your balance. If you do not have £3K, you shouldn't be using a 123, as others (e.g. TSB, Tesco) are more suitable. But let's assume we are talking people with £3K+.

If you have the max £20K in a 123 each day of the year, and no DDs that qualify for cashback, the interest you get is the gross interest, 2.96 minus the £24 for 12 months worth of account fee. So that would make it 2.84% gross.

Most people will, however, be able to earn more than £2 DD cashback a month (mine averages at around £10 a month), so the monthly account fee is pretty much irrelevant for those who want it to be irrelevant. For someone with a £10 net per month cashback, the interest rate would - very crudely calculated - be 3.44%.

The 3.44% would be the minimum, as there is no tax payable on cashback, but 20% BR tax is automatically withheld from interest unless you are tax exempt.

Barbara_G

A BIG WARNING about the 123 account: go over £20,000 Ina month & you get 0.1% interest on the WHOLE balance. I put my £20k savings in mine, got a months interest added them the next month got nothing because that first month's interest had put me over the threshold

molerat

Barbara_G wrote: »

A BIG WARNING about the 123 account: go over £20,000 Ina month & you get 0.1% interest on the WHOLE balance. I put my £20k savings in mine, got a months interest added them the next month got nothing because that first month's interest had put me over the threshold

Incorrect, you must have done something else to receive no interest such as not pay in the required £500.

Archi_Bald

Barbara_G wrote: »

A BIG WARNING about the 123 account: go over £20,000 Ina month & you get 0.1% interest on the WHOLE balance.

0.1% is not a rate Santander pay on the 123. http://www.santander.co.uk/uk/current-accounts/123-current-account. As molerat says, you most have done (or not done) something else.

What is your statement month?
When did you pay in your £500?
When did you add your 2 DDs?

What did Santander say when you raised your issue with them?

lazyec

The Santander 123 account pays 3% interest up to £20000.
Tax will be stopped at the usual rates on this interest ( i.e. the 3% becomes 2.4% net at the normal tax rate).
However, the account does NOT pay interest on the first £3000.


So, on £20000, at normal tax rates, the net interest, after a
year, would be £17000 at 2.4%, which is £408.


In effect, the actual interest on your £20000 is 408/20000, which comes out at 2.04%.

colsten

lazyec wrote: »

However, the account does NOT pay interest on the first £3000.

This is NOT TRUE.

For every day you have £20K in the account, you get interest at the rate of 2.96% gross.

For balances below £3,000:

• no interest if the balance is below £1,000
• 1% AER/gross interest for balances between £1,000 and £1,999.99
• 2% AER/1.98% gross interest for balances between £2,000 and £2,999.99

As per http://www.santander.co.uk/uk/current-accounts/123-current-account. It's always been like this since the 123 account became first available.

eskbanker

lazyec wrote: »

The Santander 123 account pays 3% interest up to £20000.
Tax will be stopped at the usual rates on this interest ( i.e. the 3% becomes 2.4% net at the normal tax rate).
However, the account does NOT pay interest on the first £3000.


So, on £20000, at normal tax rates, the net interest, after a
year, would be £17000 at 2.4%, which is £408.


In effect, the actual interest on your £20000 is 408/20000, which comes out at 2.04%.

Not another one who can't understand the basics of the Ts & Cs of this account! As is clearly stated prominently on their website, when your balance is between £3K and £20K, you get 3% (less tax) on the entire balance, including the first £3K.

So, your calculation is wrong, the interest is payable on the whole £20K and is therefore £20K X 2.4% = £480 in simplistic terms (strictly speaking it's 80% of 2.96% because of lack of compounding on a full balance, also the cashback v fees adjustment as per colsten's post #14 above).

wolvoman

Something funny here.
2 brand new posters on the same day, both posting completely incorrect information about the 123 account?

Maybe Santander's competitors have initiated dirty tricks marketing campaigns.