Santander has been the stand out performer when it comes to current account switching with a table topping 186,183 net new customers gained in the year to 31 December 2014 – but has today announced an increase in the 123 account monthly fee from £2 to £5 with effect from 11 January 2016.
The cashback returns on utilities and in credit rates have not been changed, however the increased fee takes some of the shine off this deal, particularly for those customers with smaller credit balances.
Someone with the maximum £20,000 eligible credit balance earning 3% will still earn £600 per year (pre tax) in credit interest is still getting a good deal compared with standard savings accounts, despite the extra £36 in annual charges from January.
For those with smaller balances it could be more of a game changer – if you have a £3,000 balance you’ll earn £90 per year pre tax – £72 after 20% tax, but will be paying out £60 in fees – thus giving you just £1 per month benefit. There is of course the option to earn cashback on your utility bills on top of this but for those savers at the lower end of the scale the deal now looks less attractive.
123 Credit Card
As with other providers including Capital One and Tesco Bank, the reduction in credit card interchange fees has had an impact on the Santander business model and as a result the rewards will be reduced for new customers, whilst all cardholders will see a £1 per month increase in the monthly fee.
Existing customers will see no change to the amount of cashback they can earn but will pay an extra £1 per month fee (from 11th January 2016) it will be £3 per month instead of £2.
For new 123 credit card customers the maximum monthly cashback will be £9 but limited to a maximum of £3 each on the three individual cashback components i.e. (max £3 on transport at 3%, max £3 on department store spend at 2% and max £3 on supermarket spend at 1%).
To offset the additional financial outlay Santander is reducing the 2.95% charged on overseas transactions to 0% until 31 December 2016.
The move to reduce interchange fees was designed to benefit consumers, but for many it’s having the opposite effect and decimating the cashback and rewards market