Santander cuts cashback interest on top current account and introduces new 40% charge on overdrafts
SANTANDER is cutting the interest rate on a range of popular current accounts to just 1 per cent in May. The bank is also capping cashback for customers to £15 per month, and introducing a single overdraft interest rate of 39.9 per cent. At the moment, 123, Select and private current accounts customers earn 1.5 […]
SANTANDER is cutting the interest rate on a range of popular current accounts to just 1 per cent in May.
The bank is also capping cashback for customers to £15 per month, and introducing a single overdraft interest rate of 39.9 per cent.
At the moment, 123, Select and private current accounts customers earn 1.5 per cent in interest on balances of up to £20,000.
Users can also earn up to 3 per cent in cashback on selected household bills for a monthly fee of between £1 and £5.
But from May 5, the cashback earnings will be capped at £5 in all three categories including water and council tax bills, energy bills as well as mobile and broadband bills.
It means customers can earn a maximum of £15 each month in cashback, although that’s excluding the monthly fees, which will remain the same.
Santander’s also scrapping its daily overdraft fees to introduce a flat interest rate of 39.9 per cent from April 6.
The move follows similar changes for overdraft users at Barclays, HSBC, First Direct, NatWest, Nationwide and RBS.
The shake-up comes amid new rules being introduced by the Financial Conduct Authority (FCA) that will see banks banned from charging rip-off overdraft fees, although they can still charge interest.
Best current accounts for interest
IF you're disappointed by Santander's move, below are the current accounts that pay the highest interest rates.
Nationwide FlexDirect – You’ll get 5 per cent on balances up to £2,500 for the first year you have the account before it drops to 1 per cent.
TSB Classic Plus – You’ll get 3 per cent with TSB but only on balances up to £1,500.
Check out our round-up of the best current accounts depending on how much you earn.
Plus, take a look at the best savings accounts here.
Currently, Santander customers pay daily fees of £1 on overdrafts below £2,000, £2 on amounts between £2,000 and £2,999.99 and £3 if you’re more than £3,000 in the red.
It also charges daily fees of up to £6 if users on its Everday accounts or student currents account dip into an unarranged overdraft.
The new rate will apply to all current accounts, apart from the so-called Choice account, which will have a lower 29.9 per cent overdraft rate but a monthly account fee of £10.
Customers with larger overdrafts will be worse off under the changes, while those with smaller debts will enjoy lower costs.
For example, an overdraft of £100 currently costs £31 over 31 days at Santander, but this will reduce to £2.89.
While someone £3,500 in the red over the same time period will see their costs increase from £93 to £101.31.
How to cut down your overdraft costs
THERE are a few ways to cut overdraft costs, and which suits you will depend on your situation. Here are a few options advised by MoneySavingExpert:
Spend less each month – do a proper budget and have a look at what you’re spending on.
Could you cut your morning coffee, or go down a brand at the supermarket?
Or, are you paying too much on your bills – if you haven’t switched energy, insurance and broadband recently, then it’s likely you could save £100s or even £1,000s over a year.
Move your bills – this can be dangerous if you’re not disciplined, but if you move your bills to just before payday rather than just after, many will be in credit (or less in the red) for less of the month, meaning you’re charged less for the overdraft. But – remember those bills are coming out, so don’t treat it like you’ve extra money to spend.
Move bank account – there are plenty to choose from and you can end up saving money.
Shift your overdraft on to a money transfer card – and don’t build it back up again.
Try setting up “pots” – sort your cash at the start of each month, so you have a bills pot, a spending pot etc. Use this technique to make payments to your overdraft, eg £100 a month, treating it like any other bill.
Santander, which has roughly 15million UK customers, said six out of seven overdraft users will pay less than they currently are.
Challenger Starling Bank currently offers the lowest overdraft rate of 15 per cent, so if you often dip into the red it may be worth considering.
Although, from April 1 it’ll change its overdraft rates to 15, 25 and 35 per cent – the rate you get will depend on your credit score.
If you’re constantly finding yourself in the red, it’s worth following the tips in the box above to reduce your costs.
Rachel Springall, finance expert of comparison site Moneyfacts, told The Sun it “seemed inevitable” that Santander would review its current account benefits following the FCA ban.
She said: “The ban this year on flat fees should be celebrated as it will generally mean a decent saving for consumers who are the most vulnerable and fall into an unarranged facility.
“However, the changes have led to banks and building societies charging high interest rates on overdrafts, so it could be cheaper for consumers to use a credit card for short-term lending instead.
“Cutting the credit interest rate to 1 per cent will result in some easy access savings accounts paying a better return, whether someone savers a small amount or up to the £20,000.
“Cutting the cashback will be disappointing news to customers, as this feature may well be the most lucrative benefit.”
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Last year, Lloyds Bank was slammed for making overdraft fees more expensive and complicated for customers.
Meanwhile, rules forcing banks to alert customers via text message before they slip into the red came into force.
If you’re struggling to get out of the red, follow our tips and pay off your overdrafts before banks hike their charges.