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

eskbanker

Arty_Bella wrote: »

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.:)

With most accounts there's not much to think about, just a straightforward interest rate, although there is a slight difference between AER and gross interest if paid monthly, which I think we can park for now.

The Santander 123 is more complex though, because your effective return (not a defined/recognised term btw, 'actual return' will do just as well) comprises interest plus cashback minus monthly fees.

It's impossible to condense it all down to a single one-size-fits-all percentage figure though, because interest earned varies according to your balance, while cashback varies depending on which DDs you have and their value/frequency, and monthly fees are fixed.

So, that's three completely different measures, two of which are variable and one fixed, hence multiple posters providing different percentage figures for different balances - because the monthly fee is fixed, this has a proportionally greater effect on low balances.

To calculate your own effective rate of return, just total up a year's worth of interest, add the annual cashback and deduct £60, to give the total return, and then divide this by the average balance to give the effective rate of return.

Incidentally, if you pay utilities, etc, by direct debit, wouldn't it make more sense to do this from either 123 or 123 Lite (if you get one), rather than paying these from elsewhere? If you have an alternative cashback account that works better for you then there would seem to be little value in continuing with Santander at all....

djpailo

There is little reason to keep the Satander 123 account in its current form. The only people on these forums who keep it do so because they don't want the hassle of changing several standing orders which feed regular savers etc.

Ideally, if you need the cashback, use the Santander Lite account. Put your savings instead in other interest paying, fee-free, current accounts; regular savers and the Marcus account etc.

jimjames

Arty_Bella wrote: »

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.:)

If you move to Tesco instead to use as your hub you'd get a pure 3% interest, no fees.

Zero_Sum

The main benefit of the 123 account is the cashback on bills. This is available on the lite version for £1 fee. So you're effectively paying £48 a year for the interest.
If you have full £20k you'll get £300 gross interest. Or £252 net of fees above the the lite version. Which is in effect is 1.26%

eskbanker

Zero_Sum wrote: »

The main benefit of the 123 account is the cashback on bills. This is available on the lite version for £1 fee. So you're effectively paying £48 a year for the interest.
If you have full £20k you'll get £300 gross interest. Or £252 net of fees above the the lite version. Which is in effect is 1.26%

It seems arbitrary and pointless to work out notional figures to compare £20K in a 123 versus a 123 Lite - as the latter doesn't pay any interest then obviously nobody with £20K is going to leave it there and would instead put it somewhere where it'll earn interest (e.g. Marcus, which pays slightly more (0.01%) than the 123 on £20K), so if you're going to work out comparative returns on £20K then realistic and meaningful scenarios should be portrayed, otherwise it's a Zero Usefulness Sum

Zero_Sum

eskbanker wrote: »

It seems arbitrary and pointless to work out notional figures to compare £20K in a 123 versus a 123 Lite - as the latter doesn't pay any interest then obviously nobody with £20K is going to leave it there and would instead put it somewhere where it'll earn interest (e.g. Marcus, which pays slightly more (0.01%) than the 123 on £20K), so if you're going to work out comparative returns on £20K then realistic and meaningful scenarios should be portrayed, otherwise it's a Zero Usefulness Sum

Its seems that youve also completely missed my point.
Of course no one is going to leave £20k in the lite account and at no point did i make any such comparrison. If you had read between the lines the comparrison was sticking the £20k in somewhere like marcus & using lite purely for cashback on bills.

The fact remains you are paying an extra £4 a month for the interest. So the real interest rate is 1.5% less £4

Bimbly

As above, if you are not using the account for DD cashback, then you could earn more money elsewhere, such as with Marcus (1.5% minus £0 is more than 1.5% minus £5/month).

If you want to keep this account, then you will make more money transferring the cash balance to, eg, Marcus and changing the account to Lite.

But consider, do you really need to use this account as your hub? Could you not scrap it altogether and save yourself the fee?

Or, even better, switch it to another bank. I just received £150 for switching to HSBC, which also gives me access to their regular saver at 5% for up to £250/month. Other banks offer similar deals which maybe even better for you. If you open a new regular saver with Santander now, you'll only get 3% (if you have an existing one that pays 5%, that rate stays until maturity).

I still retain a 123 account, but I downgraded it to lite. It's worth it for me as I have a Santander mortgage, plus other DDs, thus cashback enough to justify the £1 fee.

I would suggest that the only reason to keep this account is for convenience.

eskbanker

Zero_Sum wrote: »

Its seems that youve also completely missed my point.
Of course no one is going to leave £20k in the lite account and at no point did i make any such comparrison. If you had read between the lines the comparrison was sticking the £20k in somewhere like marcus & using lite purely for cashback on bills.

The fact remains you are paying an extra £4 a month for the interest. So the real interest rate is 1.5% less £4

Your previous post clearly stated £20K in a full 123 as the basis of your comparison so it seemed reasonable to infer that you were evaluating it against the same amount in the 123 Lite - if you're comparing the return on £20K in a full 123 with the return on a different amount in a 123 Lite then that's obviously even more pointless....

Zero_Sum

eskbanker wrote: »

Your previous post clearly stated £20K in a full 123 as the basis of your comparison so it seemed reasonable to infer that you were evaluating it against the same amount in the 123 Lite - if you're comparing the return on £20K in a full 123 with the return on a different amount in a 123 Lite then that's obviously even more pointless....

It wasnt reasonable to infer that at all.
What i did was show how much interest you receive & how much fees are on the full fat 123. The net result is your real rate. That is the only comparison i made as far as interest goes. The only mention of lite was to show how much extra it costs in terms of fees. Again no mention of amounts in account because the pointless things you're claiming were never made.

eskbanker

Zero_Sum wrote: »

It wasnt reasonable to infer that at all.
What i did was show how much interest you receive & how much fees are on the full fat 123. The net result is your real rate. That is the only comparison i made as far as interest goes. The only mention of lite was to show how much extra it costs in terms of fees. Again no mention of amounts in account because the pointless things you're claiming were never made.

It's perfectly valid to say that £20K earns £300 interest in a full 123 [strictly speaking £298].

It's perfectly valid to say that a full 123 has £60 annual charges that reduce the net effective return on £20K to 1.2% [actually 1.19%].

It's perfectly valid to say that a 123 Lite has £12 annual charges regardless of balance.

It's perfectly valid to observe that the difference in charges between the two types of account is therefore £48, regardless of balances.

It's completely meaningless to mash all these numbers together and come up with:

Zero_Sum wrote: »

If you have full £20k you'll get £300 gross interest. Or £252 net of fees above the the lite version. Which is in effect is 1.26%

especially in the context of an OP looking for some clarity about what rates can actually be earned with their money, rather than notional variance figures that don't represent any useful real-world scenarios!