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When is a 1.5% interest rate really 1.19%?

1 November 2016

Doing the sumsWhen it's a Santander 1|2|3 account.
From today, 1 Nov 2016, Santander is cutting the interest rates on their popular 1|2|3 Current Account from 3% AER / 2.96% Gross down to 1.5% AER / 1.49 Gross. Ok, theoretically there should be some gainers as the new rate applies to all balances up to £20,000 so anyone with up to £1,999 should be better off against the previous 1% tiered rate. But in reality everyone has to pay a £5 a month fee, no ifs no buts, it's compulsory. This means having the maximum £20,000 eligible for interest, over a year you would make approx (£20,000 @ 1.49%) £298 interest less £60 annual fees = £238. Just £238 for your £20,000 which is a real interest rate of only 1.19%. That's as good as it get too, the less cash you have the worse it gets. Having £10,000 you'll make £90 a year after fees which is only a 0.9% interest rate. Indeed for anyone with less than £4,000 then the fees are more than any interest you will make.
Yes, I know there is the little matter of cashback on qualifying household bills that you setup and pay for by Direct Debit. These benefits depend on each individuals circumstances and will be more beneficial to some than others. But if you are hanging on to your 1|2|3 account purely for the cashback, then you would be far, far better off moving these direct debits to a Santander 1|2|3 lite account that only has a £1 per month fee yet still pays the same cashback, and then switch your cash to higher interest paying current accounts. This lets you win both ways.


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