Current account credit interest slashed – where’s the best deal now following all the rate cuts

Santander broke the bad news back in August that it would be cutting the interest rate on credit balances on its hugely popular 123 current account from 3% to 1.5% with effect from 1st November 2016.

This was a hammer blow to its 4 million plus account holders, many who had found it far a more rewarding home for their nest egg than a standard savings account.

Many customers were probably thinking about closing their 123 account to find a better rate from the likes of TSB, Halifax or Lloyds Bank – however in the last two days all three of these providers have announced swingeing cuts to credit interest returns too – or in the case of Halifax, its reward payments.

Who is cutting what and when?

TSB is ditching its 5% rate on £2,000 and replacing it with 3% on the first £1,500 from 4th January 2017

Lloyds Bank is cutting the rate on it’s Club Lloyds account to 2% on balances up to £5,000 from 8th January 2017 (currently pays up to 4%)

Halifax is cutting its monthly reward payment from £5 to £3 with effect from 1st February 2017

Stick with Santander 123 or switch elsewhere?

The question now for Santander 123 customers is whether to stick or twist – the answer is not as straightforward as yes or no as it will depend not only on your average credit balance but also whether you take advantage of the 123 cashback option on household bills paid by direct debit.

The attached tables will help you pick the best option based on your own financial situation – you’ll also notice I’ve included Tesco Bank 3% and Nationwide Building Society 5% (first year only) in the calculations and it may well be that these two providers decide to trim their credit interest rates too – but nothing confirmed as yet.

The first table compares current accounts assuming you only receive credit interest on your Santander 123 account and no cashback.

xsantander-123-interest-comparison-post-cuts-based-on-credit-interest-only

The next table compares accounts assuming you receive credit interest on your Santander 123 account and £4 per month in cashback.

xsantander-123-interest-comparison-post-cuts-based-on-credit-interest-4pm-cashback

The final table compares accounts assuming you receive credit interest on your Santander 123 account and £9 per month in cashback.

xsantander-123-interest-comparison-post-cuts-based-on-credit-interest-9pm-cashback

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