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 month 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% on your credit balances and earn up to 3% cash back on household direct debits, but on the downside the account comes with a £2 monthly fee.
Unlike many incentives, this is an on-going offer rather than the usual upfront cash payment or 12 month introductory rate, and 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 £1000, but for sums of £1000 and over the rate is 1% AER, for £2000 and over it is 2% AER and at £3000 plus (to a maximum £30,000) the rate is 3% AER.
The Cashback rates on household bills are also tiered, with 1% payable on water and council tax direct debits, 2% on electricity and gas and 3% 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 that maintain a credit balance below £2000 you may be better off looking at the Halifax Reward account which pays a net monthly credit of £5 per month as long as you credit £1000 to the account.
Another fee free option to consider is Lloyds TSB with Vantage where you’ll earn 1.50% AER from £1 to £1,000, 2.00% AER from £1,000 to £3,000 and 3.00% AER from £3,000 to £5,000.
The123 account won’t suit everyone, but you can use the online calculator on the Santander website to check if it’s 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%) stated that they would seriously consider, switching their current account provider in the coming year.
Verdict HIT 8/10