How to calculate interest in a santander 123 account?

johnsmi

Hello,


If I was to put £20K in a Santander 123 account does this mean that I would earn £600 per year at 3% or because amounts less than £3k have lesser interest I wouldn't get the full 3% on them, so that would mean I wouldn't earn £600 per year on the full £20k?


Finding it a little confusing so any clarification would be really appreciated.


John

Stompa

You'll get 3% on the full £20k.

NotRichAtAll

all amounts over 3k get 3% interest so 20k falls into an amount over 3k so that earns the 3%

frugalmacdugal

Hi,

remember, there might be a tax deduction of 20%, depending on your circumstances.

ceredigion

Well 2.96% minus 20% tax in reality.

colsten

Stompa wrote: »

You'll get 3% on the full £20k.

ceredigion wrote: »

Well 2.96% minus 20% tax in reality.

Stompa is slightly right, the AER of the 123 is 3% for balances between £3K and £20K. But AER includes compounding of monthly interest, which you cannot benefit from if you keep £20K in the account all the time. You could, of course, move the monthly interest to other accounts where you can earn interest, and that is what many multi-accounters do, but the interest rate you can earn from a permanently maxed 123 is the Gross interest, published as 2.96%, as cerdigion said. As ceredigion and frugalmacdugal also point out, 20% tax will be withheld unless you have told Santander that you qualify for gross interest.

Plus, the 123 costs you £24 a year, a sum that you may or may not be able to recover from the cashback on DDs (I recover a lot more than £24 a year myself).

BOS and Tesco have 3% AER (2.96% gross) accounts that don't have a mandatory monthly charge. They have lower max amounts they pay interest on but they do take £21K between them.

Worth reminding ourselves that the rates on all these accounts are variable, so banks can give notice at any time of a change in rates.