Banks have been quick to act following the recent announcement from the Bank of England that interest rates were being cut to 0.25%,
Santander announced earlier this week that they were reducing the headline rate on their popular 123 Current Account to 1.5%. The 123 account had been paying interest of 3% on balances of up to £20,000 making it one of the highest paying accounts on the market. The cut was bigger than many analysts expected but even at 1.5% the Santander account will still be paying more than many of its competitors.
And for those of you interested in the small print, at the same time as Santander announced the changes to the headline rate it also announced an increase to overdraft rates on the account. At the moment all agreed overdrafts are charged at £1 per day but from November this will double to £2 per day for overdrafts between £2000 and £2999 and triple to £3 per day for all agreed overdrafts over £3000. In a bit of good news, balances of under £1000 that didn’t previously pay interest will now earn interest at the same rate as larger balances, 1.5%.
So what should you do if you are a Santander customer? The knee-jerk reaction would be to close your account in a fit of pique, angry that the Bank has used the opportunity of a very small cut in base rates to halve the interest it paid on its flagship account. The sensible approach, however, might be to sit tight and do nothing, at least until the dust settles and we see how Santander’s competitors react to the interest rate change.
The Santander account is still competitive, and still pays cashback for customers who use it to pay their monthly bills. You need to look at it as a package and work out if it still does what you want it to do, and does it better than any of the other current accounts out there. If it does then keep it. If it doesn’t then move. But do your homework first of all to make sure that you are moving to something more worthwhile.