Santander Cut Interest Rates On 123 Account

Santander has announced it will be reducing the amount of interest its customers can earn from its hugely popular 123 current account.

The rate will be cut in half, reducing the amount savers can earn from 3% to 1.5%.

Santander's 123 current account is a flagship offering from the bank and allows customers to claim cashback on household bills for a £5 monthly fee - a feature which will not be affected by the interest rate change.

The cut follows a decision by the Bank of England to reduce the base interest rate to an historic low of 0.25% at their monthly meeting on 4 August.

Following that decision, Santander guaranteed it would not be reducing interest rates on its savings accounts by more than the Bank's 0.25% reduction, but made no such promises in regards to its current accounts.

The change will come into effect on 1 November, providing customers with more than the required 60-day notice period to allow them to switch account provider if they choose to do so.

It (Other OTC: ITGL - news) will apply to balances of up to £20,000.

Customers who bank with the 123 account - around 3.8 million people worldwide - will see a huge difference in their returns once the reduction comes into effect.

Savers who would have earned £600 in interest annually on an account balance of £20,000 will now only receive £300.

But according to some industry commentators, customers should think twice about switching providers until closer to the time the change will be implemented, as many other banks may follow suit and reduce the rates on their own high interest current accounts in the meantime.

"The most important warning for existing Santander 123 savers is don't close it in anger now," said Martin Lewis of MoneySavingExpert.com.

"Not just to grab the next two and a half months of high interest, but because, unfortunately, it is likely Santander is just at the vanguard of rate cuts.

"Its main competition, the other banks with high interest accounts, may well cut those too."