Money Insider: Switching to 123 can offer more than just a short-term deal


It's become common practice for banks to offer financial incentives as they desperately try to encourage customers to join them and kick their current provider in to touch. Up to now, switching initiatives have fallen into a number of categories. These include upfront cash hand outs, short-term promotional credit interest rates, limited-interest free overdrafts or access to exclusive products in a bid to win new current accounts.

This week Santander announced details of a switching incentive with a difference when it launched its new 123 current account.

In a nutshell, you can earn up to 3 per cent on your credit balances and up to 3 per cent cash back on household direct debits, but on the downside the account comes with a £2 monthly fee.

Unlike many incentives, this is an ongoing offer rather than the usual upfront cash payment or 12-month introductory rate. What's more, you only need to fund the account with £500 per month to qualify.

The financial benefit you'll receive depends on the size of your credit balance and the amounts you pay on your household bills by direct debit.

No interest is earned on balances below £1,000, but for sums of £1,000 and over it is 1 per cent annual equivalent rate (AER), for £2000 and over it is 2 per cent AER and at £3,000 plus (to a maximum £30,000) the rate is 3 per cent AER.

The cash back rates on household bills are also tiered, with 1 per cent payable on water and council tax direct debits, 2 per cent on electricity and gas, and 3 per cent on mobile, home phone, broadband and paid-for TV packages.

You'll need to do the sums based upon your own circumstances, but for those who maintain a credit balance below £2,000 you may be better off looking at the Halifax Reward account which pays a net £5 per month as long as you credit £1000 to the account.

Another fee-free option is Lloyds TSB with Vantage, which offers 1.5 per cent AER from £1 to £1,000, 2 per cent AER from £1,000 to £3,000 and 3 per cent AER from £3,000 to £5,000.

You can use the online calculator on Santander's website to check if the 123 account is worth considering.

The latest research from YouGov SixthSense suggests that current account switching is set to rise in the next 12 months. Just under a quarter of current account holders (22 per cent) stated that they would seriously consider, switching their current account provider in the coming year. It's too early to say whether the new Santander model will be enough to tempt many of them away from their current provider, but I'm sure that we'll be seeing more switching initiatives from other banks during the next few months.

Act quickly to snap up santander deals

Santander this week blew the competition out of the water in the ISA best-buy tables with three, highly competitive offerings.

For those seeking a variable rate ISA with instant access, the Direct ISA Issue 9 pays 3.3 per cent annual equivalent rate (AER) and also permits transfers in of existing ISA money. The minimum balance for this account is £2500.

The rate does include a bonus of 2.8 per cent for one year, so make sure you put a note in your diary to move the cash in 12 months' time when the rate drops to a paltry 0.5 per cent.

There are also two new, fixed-rate ISA deals from Santander with the one-year fix paying a market-leading 3.5 per cent AER, again allowing transfers in of previous years' ISA money and with a minimum balance requirement of £2,500.

The two-year fix is entitled the Major ISA because even though it pays the top rate for this term of 4 per cent, savers will get an extra 0.1 per cent if Rory Mcllroy wins an eligible golf major championship in the next two years.

It may be a gimmick, but with a top rate already in place, you're not really going to miss out if Mr Mcllroy fails to deliver.

These accounts will go like hot cakes, so don't hang around too long if you want to bag one.

Andrew Hagger –

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

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