I have reviewed the Santander 123 Current Account before, and talked about why I love it. It offers cashback AND savings up to 3% a year, automatically on your current account, for what used to be a £2 monthly fee. They now more than doubled their monthly fee since January 2016, to £5.
The perks are the following:
- 1% cashback on Council Tax. Mine is £1.59
- 2% cashback on electricity and utilities. Mine is £0.64
- 3% cashback on broadband and phone. Mine is £0.51
I am getting £2.74 cashback a month. So the account is costing me £27.12 with the new £5 monthly fee, when before I was earning £8.88 a year just with cashback.
The savings work like this:
- 1% on savings above £1,000
- 2% on savings above £2,000
- 3% on savings above £3,000
Last year, I maintained quite a bit of cash, but now that the pound is weak, I keep my wealth in dollars and euros, and what little cash I have in pounds, I put into Peer to Peer lending. So I probably have an average of £500 on the account. To generate £27.12 and break even, I would need to have £2,000 on the account all year. Having £1,999 would only earn me £19.99 in interest, while having £2,000 would earn me £40.
I need to have £2,000 on the account for at least 9 months of the year.
Considering my financial priorities for the year, it is likely the account will cost me money. But here is why I am not switching back to a free current account.
1. I am lazy
Laziness is the first factor. I don’t want to move too much for £27.12 a year. While I’ll happily switch broadband every year to save £120+, this is not really worthy of my time.
2. I am abroad
Opening a new account online is pretty easy, but there is always at least a form you need to send back, and being abroad makes things complicated.
3. I have an overdraft
There is a small £500 overdraft, which I don’t want to close, because again, I am abroad, and even if my credit is good, opening new lines of credit is always an uncertainty for a self-employed person. Between cards and overdrafts, I have access to around £17,000 of instant credit, which I hope I’ll never need, but may come handy in case of a rental emergency, before I transfer cash from somewhere else.
4. Interest is calculated daily
On another savings account, interest is calculated twice a month. Here, if you hit £1,000 in balance, you automatically start earning interest, even for a day. I do get above when I get my rents kick in, and the balance stays high for a few days until my direct debits for mortgage and council tax reduce it. So there will be a little bit of interest there.
5. No work needed
That last reason also appeals to my laziness. I don’t have to be on top of the balance and move money to a savings account, then forget to move it back to current and get mad because I got charged an overdraft fee. Everything gets done in one place. And 3% is a pretty good interest rate for instant access savings on a current account.
All in all, my cashback reduces the account fee by over half, and the random interest should let me break even. So it is not worth my time and effort to shop around for a better deal.