Are bank accounts with benefits a thing of the past after Santander makes cuts?

For those after a bank account which does more than just hold your money, Santander’s announcement Tuesday that it’d cut the in-credit interest on its 123 account by a third and cap the cashback you can earn each month is only the latest blow.

The backlash against the £5 a month account has been particularly strong – it was once considered Britain’s best bank account, back when it paid 3 per cent interest on up to £20,000 and unlimited cashback on bills, and hooked in many customers. 

However, it is not the first bank account to scale back the perks it offers in recent times and is unlikely to be the last.

Diminishing returns: Current account perks across the board have been scaled back over the last 12 months

Diminishing returns: Current account perks across the board have been scaled back over the last 12 months

 Diminishing returns: Current account perks across the board have been scaled back over the last 12 months 

John Crossley, director of money at price comparison site Compare the Market, said: ‘In recent years we have seen the attractiveness of some current accounts decline.’

Santander’s changes were preceded by RBS and NatWest announcing in November they would replace their bills cashback scheme, which it said paid users an average £83 a year in cashback, in February with a less generous scheme where the earnings would be capped at £60 a year.

Meanwhile smartphone challenger bank Tandem pulled its 0.5 per cent cashback credit card from sale before Christmas and will require people to pay £5.99 a month to access it in future.

All these announcements mean generous bank account cashback schemes are increasingly a thing of the past.

It is a similar trend when it comes to in-credit interest on current account balances.

As well as Santander, TSB in July cut the interest rate paid to holders of its Classic Plus account from 5 per cent to 3 per cent, cutting the maximum someone could earn in a year from £75 to £45.

Also in 2019, Tesco Bank reduced the in-credit interest rate on its current account from 3 per cent to 1 per cent, Nationwide scrapped the 3 per cent interest it paid to holders of its £13 a month FlexPlus account, and holders of Lloyds Bank’s Club Lloyds account with less than £4,000 in the bank have seen the interest they’re paid fall from 1.5 per cent to 1 per cent since October.

How are Santander and RBS’s cashback accounts changing? 

Currently RBS and NatWest’s Reward accounts pay 2 per cent cashback on 7 types of bills paid by direct debit.

They are council tax, gas, electricity, mobile contracts, landline, TV and broadband. There is currently no cap on how much cashback you can earn, but the banks say users earn an average of £83 a year.

Following the 1 February changes, customers will receive £1 a month for logging into mobile banking, while they will receive £4 a month for having two direct debits of at least £2 each, meaning cashback will be capped at £5 a month.

Meanwhile Santander’s 123 account offers up to 3 per cent cashback on several types of household bills. This isn’t currently capped, but in May the most you can earn is £15 a month.

And if that wasn’t enough, some banks are adding insult to injury by raising the cost of their overdrafts, in some cases nearly trebling them. 

Regardless of whether someone is in the red or in the black with their balance, it’d be hard to conclude they’re better off now than even 12 months ago.

Why is this happening? 

Current accounts can be expensive for banks to run and ones with perks even more so. 

According to a 2016 report, Santander’s 123 current account, which signed up nearly 4million customers in four years, cost the bank £1billion a year to run, thanks to it having to pay 3 per cent interest on balances up to £20,000.

Those perks have previously been cross-subsidised, but a decade of low interest rates, the low cost of consumer borrowing, a mortgage price war and a regulatory crackdown on the ability of banks to profit from users of unarranged overdrafts have all dented that.

Santander’s latest results found pre-tax profits in the nine months to September 2019 fell by 43 per cent compared to the year before, thanks to competition in the mortgage market and PPI payouts.

Both Santander and RBS, when they announced that their cashback deals were being capped, suggested their propositions were no longer sustainable to run. They pointed to persistently low interest rates, regulatory changes and the rising cost of household bills.

As RBS succinctly put it: ‘The changes are in line with what other banks are doing or have already done in terms of reducing account benefits.’

Which banks have announced changes to their overdrafts so far? 
Bank account  Old overdraft rate New rate  Fee-free buffer? 
Nationwide FlexAccount 18.9%  39.9%  No
HSBC Advance  17.9%  39.9%  Yes – £25 
First Direct First  15.9%  39.9%  Yes – £250 
M&S Bank  15.9%  39.9%  Yes – £250 
RBS/NatWest Select  19.89% (plus £6 monthly fee)  39.49%  No 
Monzo  50p per day above £20 19%/29%/39%  No 
Starling   15% 15%/25%/35%  No 
Barclays Bank Account  Tiered rate  35%  Yes – £15 
Santander  Tiered rate  39.9%  No 

What neither did is cut the account fee at the same time.

It remains to be seen what impact, if any, this has on the current account switching market.

Mr Crossley said: ‘When Santander launched its 123 current account to much fanfare in 2012, consumers listened and switched in droves, demonstrating that consumers can be motivated to switch for a good value deal.

Who gained the most switchers in 2019?

According to the latest official switch figures, in the first 9 months of 2019:

– Nationwide gained a net 101,581 customers

– HSBC gained 73,214

– NatWest gained 37,663

Overall, 739,923 accounts were switched between January and September. 

‘Today’s consumers would be advised to shop around and compare prices and deals’.

Already the most popular banks among switchers, Nationwide, HSBC and NatWest, have offered one-off cash bonuses or time-limited high interest deals.

Given banks are scaling back the perks they offer, and thus giving account holders less of a reason to stay, it is possible consumers could look to switch more often. 

Or, they might even have to compete on good old-fashioned customer service.

Andrew Hagger, founder of personal finance site Moneycomms, said: ‘Credit interest and rewards have been slashed to almost worthless levels whilst overdraft costs for agreed borrowing have soared, there’s now less reason for people to switch banks as the difference is marginal.

‘Most switching going forward will be down to one-off sweeteners, or cases where customers have a really poor experience with their existing bank.’


Santander’s 123 Lite Account will pay up to 3% cashback on household bills. There is a £1 monthly fee and you must log in to mobile or online banking regularly, deposit £500 per month and hold two direct debits to qualify.


First Direct’s First Account offers a £100 switching incentive to new customers and £100 if you switch away after six months (T&Cs apply). It comes with a £250 free overdraft and requires a £1,000 monthly deposit to avoid a £10 monthly fee.

First Direct

M&S Bank’s Current Account offers £180 in gift cards to switch and stay or £220 to existing M&S credit card holders. You earn 1 M&S point for every £1 spent on the card. You need four active direct debits, to pay in £1,250 per month and register for online banking and statements.


HSBC’s Advance Account offers £175 cash if you switch to it. The account comes with a £1,000 starting overdraft and 2.75% regular saver account. There is no monthly fee, however you must deposit £1,750 per month into the account.


Nationwide’s FlexDirect come with 5% interest on up to £2,500 – the highest interest rate on any current account – plus a fee-free overdraft. Both perks last for a year.


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Written by cerebralstudio626


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