What is 'actual' interest rate of Santander 123 account?

Arty_Bella

Hello everyone, newbie here hope I'm doing this right! Please point me in the right direction if wrong.
I have current accounts with Santander 123 and, more recently, with Marcus both giving 1.5%. My question is, given there is a £5 monthly charge on Santander & I get no money back on DDs, what is the actual interest rate? I've done searches here and couldn't find the answer and my brain doesn't compute figures like these very well! Sorry if this has already been answered.

JimmyTheWig

How much do you have in it?
Are you thinking about ditching the 123 completely?

ColdIron

The actual rate of interest on the Santander 123 account is as stated in the T&Cs - 1.5%. This is what they will pay you each month. It also charges £5 per month. It also offers cashback on certain direct debits

You can try and manufacture an 'effective rate of return' by combining the above and it will be different for everyone but it is not an interest rate which remains at 1.5%

If you cannot get any cashback it would be bonkers to use Santander, Marcus would be a better bet

For most people who can get cashback then using the Santander Lite account at a cost of £1 instead of £5 for cashback and Marcus for interest would provide the best return

Alter_ego

on 20k the effective rate of return is 1.19% or 1.2% IIRC

Arty_Bella

Thank you for your reply.
I try keep it to about the £20k mark. Not thinking of ditching it altogether as I use it as a 'hub' for other accounts, money in/money out, etc. My other half has an account and we have a joint account which both receive money from DD's, so as far as I can work out they can stay as they are?
My thinking is to move the majority of the balance across to Marcus but I'd like to know what is the actual interest rate I'm receiving from Santander given charges, etc.

ColdIron

Arty_Bella wrote: »

My thinking is to move the majority of the balance across to Marcus

A wise move. An even wiser move would be to move all of it and close the account to avoid the £5 fee. You could use one of the other accounts as your hub

but I'd like to know what is the actual interest rate I'm receiving from Santander given charges, etc.

The actual rate of interest is still 1.5% (AER, 1.49% gross) I'm afraid, that's what they will pay you each month. On £20,000 your 'effective rate of return' with no cashback and a £60 pa charge is about 1.2%. Marcus will pay an actual interest rate of 1.5% but with no fee so the effective rate of return is also about 1.5%

Arty_Bella

Thank you, ColdIron.
Been with Santander for some time and know some of it's limitations. I've been thinking about the 123 Lite but as far as I understand there is no interest earned on this account? The DD's I use on my 123 do not earn any cashback, they are used elsewhere so the Lite account would earn no cashback to offset the monthly charge. I also have a regular saver and need to investigate if this would still be available with the Lite.

Arty_Bella

Thanks Alter Ego! Someone who has a mathematical brain .
I knew it would be lower but not by how much and would it be worth moving the funds.
Your figures have confirm my thinking!
Many thanks

eskbanker

Arty_Bella wrote: »

Thanks Alter Ego! Someone who has a mathematical brain .
I knew it would be lower but not by how much and would it be worth moving the funds.
Your figures have confirm my thinking!
Many thanks

But of course if you move most of the money out of your 123 then the effective rate decreases, so if you only had £4K in the 123 account, that would earn exactly the same £60 interest (if left to compound) that would then be deducted in monthly charges, leaving the effective net rate as 0%....

Edit: strictly speaking, since the fees are deducted monthly the interest wouldn't compound, so exactly £4K would be a slightly negative effective rate! The point remains though, that a balance of about £4K won't return anything overall and lower balances would actually lose money over the year.

Arty_Bella

Thank you again, ColdIron..my goodness wasn't expecting such quick responses!


I'm glad I took the plunge and joined here! You've all helped me and confirmed some of my thinking. More food for thought too.
I will be moving funds to Marcus and I'll look into the Lite.


It'll take a bit of sorting as there's lots of StO to RS and is a linked account for several others including Marcus. Still need to check if I would continue to qualify for the 5% RS.


ps 'im in doors' gets a fright when I show him the other two 123 accounts and all the 'toing and froing' of money, not forgetting all the other accounts I've sorted...I'll have to break it to him gently!:D

Arty_Bella

Thank you, eskbanker. Even more to think about!
Must start using the correct terminology...what I meant was the effective rate of return, what I said was 'actual' rate. Thank you all for correcting me, I'll get there in the end!


While I'm here, could someone explain how to calculate the 'effective rate of return'(if it's not too difficult)! Could come in useful.:)