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

Unpensioned56

Santander’s online banking gives you this information in a statement, at least in terms of how much your fees and gains have been.

Plus

It's not very hard to spreadsheet, which I did recently because I wanted to see how it compared with another account which had a cap on the balance that earns interest (eg £5K). For the 123, the amount of interest after fees for given balances is:

Balance / effective rate / interest
£1000 / -4.5% / £-45
£2000 / -1.5% / £-30
£3000 / -0.5% / £-15
£4000 / 0% / £0
£5000 / 0.3% / £15
£6000 / 0.5% / £30
£7000 / 0.64% / £45
£8000 / 0.75% / £60
£9000 / 0.83% / £75
£10000 / 0.9% / £90
£11000 / 0.95% / £105
£12000 / 1% / £120
£13000 / 1.04% / £135
£14000 / 1.07% / £150
£15000 / 1.1% / £165
£16000 / 1.13% / £180
£17000 / 1.15% / £195
£18000 / 1.17% / £210
£19000 / 1.18% / £225
£20000 / 1.2% / £240

If you're using it as a feeder, comparing that against various other interest-paying accounts, assuming you're going to hold more than the maximum interest-earning balance:
TSB: max interest £75 on £1500
Tesco: max interest £90 on £3000
Club Lloyds/BoS Vantage: max interest £75 on £5000
Nationwide FD: max interest £125 on £2500 for 1 year

So it really depends on how high you need to keep your balance for feeding - if it's more than about £9K then Santander 123 wins. If not, elsewhere is better.

Zero_Sum

eskbanker wrote: »

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: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!

Its not meaningless at all as thats what the charge on the interest is.
What is pointless is you creating an argument about something thats entirely in your own head.

My examples do respresent real word scenarios over interest that can be earn & charges incurred.

eskbanker

Zero_Sum wrote: »

Its not meaningless at all as thats what the charge on the interest is.

You're proving my point for me here, as 'the charge on the interest' doesn't even make sense! As explained earlier, interest is expressed as a percentage and therefore (in absolute terms) varies according to the balance, while the charges are fixed, regardless of the size of the balance.

As pointed out by ColdIron, the charges don't change the actual interest rate as such but it's legitimate to deduct them to calculate an effective net rate of return.

However, that effective rate of return is inherently variable according to balance, because of the effect of combining variable and fixed costs, hence the table that Plus posted.

If you want to compare the effective rate of return on a 123 versus that on a 123 Lite, it's therefore only meaningful to do so if you make an assumption about the size of balance used for the comparison. Your first post clearly implied that you were comparing using £20K balances but you backtracked on this and tried to claim that "If you had read between the lines the comparrison was sticking the £20k in somewhere like marcus & using lite purely for cashback on bills".

If that was what you'd actually meant then, as I pointed out earlier, that's obviously a different (but meaningful and real) comparison between earning £238 (1.19% net) in a full 123 versus £288 (1.44% net) from the Marcus (£300) and 123 Lite (-£12) combination, without any nonsense about a hypothetical 1.26%.

Zero_Sum wrote: »

My examples do respresent real word scenarios over interest that can be earn & charges incurred.

OK then, please clarify how OP can earn 1.26% on their £20K, using Santander's 123 product range....

Plus

One other thing I hadn't considered. Presumably the fees can't be deducted against the interest for tax purposes? If you pay tax on interest, with £4K in the account you might earn £60 in interest and pay £60 in fees, but presumably you're also paying 20%/40%/45% tax on that interest? So actually you're losing out in this instance.

eskbanker

Plus wrote: »

One other thing I hadn't considered. Presumably the fees can't be deducted against the interest for tax purposes? If you pay tax on interest, with £4K in the account you might earn £60 in interest and pay £60 in fees, but presumably you're also paying 20%/40%/45% tax on that interest? So actually you're losing out in this instance.

That's right, if you pay tax on the interest, the account charges can't be used to reduce that liability.

Zero_Sum

eskbanker wrote: »

You're proving my point for me here, as 'the charge on the interest' doesn't even make sense! As explained earlier, interest is expressed as a percentage and therefore (in absolute terms) varies according to the balance, while the charges are fixed, regardless of the size of the balance.

As pointed out by ColdIron, the charges don't change the actual interest rate as such but it's legitimate to deduct them to calculate an effective net rate of return.

However, that effective rate of return is inherently variable according to balance, because of the effect of combining variable and fixed costs, hence the table that Plus posted.

If you want to compare the effective rate of return on a 123 versus that on a 123 Lite, it's therefore only meaningful to do so if you make an assumption about the size of balance used for the comparison. Your first post clearly implied that you were comparing using £20K balances but you backtracked on this and tried to claim that "If you had read between the lines the comparrison was sticking the £20k in somewhere like marcus & using lite purely for cashback on bills".

If that was what you'd actually meant then, as I pointed out earlier, that's obviously a different (but meaningful and real) comparison between earning £238 (1.19% net) in a full 123 versus £288 (1.44% net) from the Marcus (£300) and 123 Lite (-£12) combination, without any nonsense about a hypothetical 1.26%.

OK then, please clarify how OP can earn 1.26% on their £20K, using Santander's 123 product range....

From that it sound like you're actually agreeing with me. Lol

eskbanker

Zero_Sum wrote: »

From that it sound like you're actually agreeing with me. Lol

The basic underlying facts haven't been in dispute at any stage (as per the summary in post #21), I was simply pointing out that the way in which you'd arbitrarily constructed a mathematically inconsistent percentage from a subset of them in post #15 was meaningless!