Thanks Santander

sofiar

So we opened a few family accounts with Santander 123 great offer, or so we thought, now to be told account cost is no longer £2 per month they are now increasing the monthly cost to £5 per month, that's over 100% increase! Think it may be time to shop around for another account!!!

enthusiasticsaver

See Martin Lewis's calculation as to whether or not it is worth keeping the Santander 123 accounts. It all depends on how much you keep in them.


I have two, 1 joint and 1 sole which both have £20k in it and all my main direct debits which earn cashback come out of them. I did the calculation and yes there will be a shortfall of around £2 per month on the direct debit cashback when the new fees kick in January but I consider it is still worth keeping them for the 3% interest (I earn under £15k so get it gross) and the simplicity of just having the 2 accounts rather than the hassle of finding more current accounts to shelter £40k in. It depends on how much you have in yours as to whether they are worth keeping.

Kendall80

I just have the one as my main account. The cashback on my DDs will almost cover the £5 fee and I have a healthy balance so its still the best option for me. From April the 3% should also be tax free which will be a welcome 0.6% boost - offsetting the £36 annualised fee increase for those maintaining a higher balance. Of course thats assuming you are within the new tax free interest 1k limit.


For smaller amounts the fee-free TSB, Lloyds and Nationwide current accounts may be the better options in terms of interest received. As enthusiasticsaver mentioned above its worth running the calculator as everyones situation will be different.

jimjames

sofiar wrote: »

So we opened a few family accounts with Santander 123 great offer, or so we thought, now to be told account cost is no longer £2 per month they are now increasing the monthly cost to £5 per month, that's over 100% increase! Think it may be time to shop around for another account!!!

Do you have the full £20k in them? If a lot less than that then you can get far better rates elsewhere although not the cashback.

colsten

jimjames wrote: »

Do you have the full £20k in them? If a lot less than that then you can get far better rates elsewhere although not the cashback.

Even if the accounts are all full, it is possible to get better interest in other accounts. That's always been the case; the increase in the monthly fee just makes it a little bit worse. The only time the 123 beats some other accounts is if the cashback is substantial, i.e. in excess of £5 a month.

neilsolaris

If you have a spreadsheet you can type in this formula to calculate the effective interest rate after the account fee. You'd need to factor in direct debit cash backs and other perks (free cinema tickets in my case!) as well.

=(B5 * 0.03 - 24)/B5

B5 denotes the cell with account balance. The number 24 assumes a £2 per month account fee. Change this figure to £60 after the £5 account fee kicks in. If you know your average monthly direct debit cash backs, so could include it like this.

=((B5 * 0.03+ [direct debit cash back * 12]) - 24)/B5

tg99

neilsolaris wrote: »

If you have a spreadsheet you can type in this formula to calculate the effective interest rate after the account fee. You'd need to factor in direct debit cash backs and other perks (free cinema tickets in my case!) as well.

=(B5 * 0.03 - 24)/B5

B5 denotes the cell with account balance. The number 24 assumes a £2 per month account fee. Change this figure to £60 after the £5 account fee kicks in. If you know your average monthly direct debit cash backs, so could include it like this.

=((B5 * 0.03+ [direct debit cash back * 12]) - 24)/B5

If you are a tax payer though you need to take account of tax on the interest when comparing with other accounts as you can't just apply your tax rate to the effective interest rate from the formula above to get the net figure because you still pay tax on 3% interest and then deduct the £24 / £60 fee as it is not tax deductible. (Though no tax is payable on the cashback.)

E.g. If 40% tax payer with £20k then effective interest rate net of tax and fees will be 1.5% next year (ex any cashback).

MDMD

tg99 wrote: »

If you are a tax payer though you need to take account of tax on the interest when comparing with other accounts as you can't just apply your tax rate to the effective interest rate from the formula above to get the net figure because you still pay tax on 3% interest and then deduct the £24 / £60 fee as it is not tax deductible. (Though no tax is payable on the cashback.)

E.g. If 40% tax payer with £20k then effective interest rate net of tax and fees will be 1.5% next year (ex any cashback).

And the rate is not actually 3%. That's the AER, the gross rate they apply to the balance is 2.96%.