MoneySavingExpert’s Martin Lewis urges customers of THIS bank to ditch their current account
The Santander 123 account used to be the best account for savers but now Martin Lewis is warning that it might be time to switch banks
THE Santander 123 current account used to offer customers three per cent interest on savings up to £20,000 - above and beyond what anyone else was offering.
Now, is warning customers with small savings to ditch the current account for an easy-access account that doesn't charge a monthly fee.
Since Santander slashed interest rates in half to 1.5 per cent last year, other types of accounts like easy-access accounts and ISAs, have seen a rise in rates which only just fall short of Santander.
And since there are many other accounts that don't charge a monthly fee, with low savings you can often earn more money on an account that offers lower interest.
The finance expert found that earnings on savings up to £5,000, Santander fall far behind competitors despite having the highest interest rates.
This is because Santander charges a monthly fee of £5.
So even though you would earn £75 on £5,000 savings at 1.5 per cent interest over a year, you are actually left with just £15 once the charges have been taken off.
Martin compared them to other top savings accounts and found that the best money earner on that sum would be the Bank of Scotland Vantage easy-access account, which offers 2 per cent on up to £5,000.
This means that by the end of a year you will earn up to £99 on the same amount of savings.
Tesco Bank account which gives you three per cent interest on up to £3,000 was found the be the second best earning you £89 over the year.
In fact, after the monthly fees are taken off, the Santander 123 current accounts falls very far behind its competitors.
Last year, Martin pointed out that the Santander 123 account offers great cashback rates on bills too, with one per cent on water and council tax, two per cent on energy and three per cent on phone and broadband.
So if you can earn £5 a month back on cashback then it will cancel out your monthly fee and you can keep all of the interest earnings.
But now, there are better options on the market for people with less savings.
"For those earning less cashback or with smaller savings, in most cases it really isn’t worth holding on to much longer," Martin writes.
He also points out that with the Bank of England expected to raise interest rates later this week, it may be better news for savers elsewhere.
What's the best place for your cash?
The key to earning the most money on your savings is being smart with your cash and know where's the best place for it.
Current accounts are generally used for everyday banking. Some current accounts offer high interest rates but are capped after the first few thousand pounds so they're not very good if you've got a lot of savings.
Some charge monthly fees too which will eat into your earnings.
There are plenty of bank accounts that will help you keep your savings seperate from your every day banking.
An Individual Savings Account (ISA) is a tax-free savings account but limits you to how much you can pay in.
If you want to pay in a regular payment each month then this is a great way to take advantage of the high interest rates.
Easy-access accounts allow you to take money out whenever you like, but the pay off is lower interest rates.
Fixed-term accounts offer some of the highest interest rates on large sums of money - like the 1.8 per cent interest offered on the one year fixed-term Atom account.
But the pay off is you can't withdraw your money until the agreed term is up.
If you do remove funds, you are generally fined a penalty fee which can be more than the interest you'd earned.
But Martin also advises people with larger sums of savings should stick with the current account as it's higher interest rates out weight the monthly fees and still give you the best earnings.
On £20,000 worth of savings, you will earn £298 over the year which leaves you with £238 after the monthly fees have been taken off.
Other high interest current accounts put a cap on savings at a much lower rate than the Santander 123 account and so you'll earn less on your savings.
BANK PERK Clydesdale Bank and Yorkshire Bank are offering £250 bonus if you switch current accounts – but you’ll need to hurry
Because there is a cap on interest on savings up after £3,000 with the Tesco Bank current account, you will earn the same amount on savings worth up to £20,00, i.e. £99.
Martin also adds that fixed cash ISAs pay more, which may be a better option for bigger savers.
The top earner for £20,000 savings is £360 with a one year fix account with online only Atom Bank.
But it's worth bearing in mind if you opt for a fixed account then you won't be able to remove money from them during the term without facing penalty charges that will eat into your earned interest.
A spokesperson for Santander said: "Our 123 account continues to attract new customers and remains popular with customers who benefit from the in credit interest and cashback on household bills.
"Customers with the 123 Current Account can also access the 123 World which provides other benefits and competitive products such as a Regular eSaver account paying 5% interest.
"We recognise that for some customers with lower balances the 123 might not be the best option and the 123 Lite account allows them to earn cashback on household bills for a lower monthly fee."
If you're thinking of switching current accounts then you might as well get paid for it.
Many banks are offering cash incentives for you to switch, like Clydesdale Bank and Yorkshire Bank who will pay you £250 bonus once you've switched.
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