Santander's new current account is not quite as easy as 1, 2, 3

Launched in a blaze of publicity the Santander 123 current account promises to pay a leading rate of interest and cashback on areas of real concern to families such as heating and utilities.

The account is certainly an innovative idea, but is it a product that offers the best of both the savings and current account world, or just another gimmick?

The idea is unusual; not only will it pay in-credit interest of up to 3 per cent on balances between £1,000 and £20,000 but it also offers cashback on gas, electricity, water, council tax and communications direct debits on the account. As an added bonus, the 123 allows customers to apply for the matching cashback credit card with no fee for the first year.

"There is no cap on the number of direct debits on the account or on the amount of cashback that they can earn. And, if you open a 123 current account and a 123 credit card, Santander will waive the £24 annual credit-card fee for the first year," says Jonathan Akerman from Santander.

The card pays 1 per cent cashback at supermarkets, 2 per cent at department stores and 3 per cent at petrol stations. There is of course a catch in that all this doesn't come for free; if you want the account you'll have to cover the monthly fee of £2.

"Once the £2 monthly fee is taken into account, this reduces the value of the cashback to just under £48 a year. Other accounts such as the Halifax Reward account, which offers a flat £5 a month instead of interest, could potentially give better value," says Michael Ossei, personal finance expert at uSwitch.com.

If your household bills are particularly high, the cashback could be worthwhile, but it will largely depend on where your money goes as the system is tiered. So, you earn 1 per cent cashback on water and council tax, 2 per cent on electricity/gas and 3 per cent on mobile, home phone, broadband, and paid-for TV packages.

While it may be appealing to earn any cashback from a current account, this alone may not be enough of an incentive, particularly when there are already dozens of online sites that offer cashback on bills.

"Cashback sites are free to join and pay lump sums of as much as £100 for new utility, mobile and insurance contracts," says Hannah Green from cashback site Quidco.

The current account interest is also only paid on balances of at least £1,000 and the rates are once again tiered: 1 per cent AER on balances over £1,000, 2 per cent over £2,000 and 3 per cent over £3,000 (up to a £20,000).

Overdraft costs are also steep at £1 a day if arranged, and a whopping £5 per day, capped at £95 a month, for unarranged borrowing. There is also the question of Santander's customer service record, which could put off potential switchers, although things seem to be improving in this direction.

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