Santander to increase fees on 123 accounts

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An estimated 3.6 million people will be affected by the changes, many of whom were tempted to switch from other banks because of the rewards on offer at Santander.

In fact, the bank say that between the launch of the current account switching service two years ago, and the end of June this year, 502,000 people have used it to move to them.

That's roughly a quarter of all customers using the switching service.

Losing interest?

Santander say that they've had to increase the monthly fee for their 123 current account in order to maintain the in-credit interest rates they offer.

That interest is tiered: customers with more than £1,000 in the account receive 1% AER, those with more than £2,000 receive 2% AER, and those with between £3,000 and £20,000 in their accounts will receive 3% AER.

For the large number of people who don't have that kind of money in their accounts long term, the account also offers cash back on certain domestic bills, and up to £10 a month cash back for those with Santander mortgages.

Earning enough in cash back to negate the monthly fee, or even make a bit of money back against it, will become more difficult when that fee increases by 250% in January.

Even those who keep enough in their accounts to earn interest will see that eaten away:

The credit card

The current account isn't the only casualty of the changing conditions.

As suggested at the start of this month, Santander's 123 credit card will also change.

New and existing customers alike will be affected by the change to the fee for simply having the card; instead of a £24 annual fee, they'll now pay £3 each month - equivalent to £36 per year.

For the time being existing customers will at least continue to benefit in the same way from the cash back scheme:

• 1% back on supermarket shopping
• 2% back on department store shopping
• 3% back on petrol, National Rail and Transport for London travel, up to £9 cash back per month

With the exception of the travel expenditure, there's no limit to how much users can earn on their spending.

But as of tomorrow, new customers will see that cash back seriously restricted. In fact, they'll only be able to earn £9 in total each month, split evenly across the three categories.

The silver lining is that Santander are making foreign spending on the card a little cheaper. Instead of charging a fairly standard 2.95% on each transaction, from tomorrow new customers will be able to spend abroad fee free until the end of 2016.

Existing customers will also benefit from this change - but only from January 11th 2016.

What's more, people with the 123 current account who are considering getting the credit card should move quickly.

Those with both products have previously had their first year's credit card fees refunded, but this bonus is being removed after 10 January.

"Not our fault"

Like other banks and credit card providers, Santander have blamed changing market conditions.

They cite increasing costs as a result of "changes to banking legislation and regulations", and the fact that interest rates on savings accounts have dropped considerably in the past few years.

Santander's Reza Attar-Zadeh says the changes are necessary not just "to meet the needs of our customers, but also our shareholders".

She points out that the fee and cash back levels hadn't changed since the products were launched in 2012, and insists that "the vast majority of customers will still be able to generate a good monthly benefit despite the changes".

But as numerous banks are slashing the rewards and bonuses on offer, there are still some who are finding new ways to try to reward - or tempt - customers.

Take, for example, TSB, who have just introduced cash back for contactless transactions.

Anyone needing an overdraft is still likely to end up paying the bank rather than being paid for their custom - but when other providers are cutting their cash back schemes, it's a clever move.

All that glitters

Despite TSB's somewhat different approach, it hasn't been enough to gain them the kind of increased custom Santander have enjoyed - with industry figures backing up the bank's claim to being the most popular out there.

Bacs, the organisation behind the Direct Debit and other automated payment schemes in the UK, release detailed switching statistics every three months.

In July's release, which looked at switching during the quarter ending December 2014, Santander were shown to have increased their customer numbers by more than 45,000.

Those figures also show that Halifax - also famous for their customer incentives - made a net gain of more than 40,000 customers in the same period.

The next biggest growth in customer numbers was seen by Nationwide - with a comparatively measly net gain of just 4,157 customers.

All three are included in our guide to the top five high interest current accounts. But that huge drop off in numbers between Santander and Halifax, and Nationwide reflects a lack of other obvious perks from Nationwide - and the fact that their high interest rate is only available for a year.

Yet as has been pointed out to the Competition and Markets Authority during their investigation into the current account market, the banks offering the biggest incentives to potential customers also tend to have some of the highest charges.