High street bank wields the axe on current account interest rates.
Santander will cut the interest rate on its popular 123 account from 1% to 0.6% in a blow to savers who once earned 3% from the deal.
The change will take place from 3 August 2020 on balances of up to £20,000 and means that customers will be able to earn a maximum of only £119.60 rather than £200 currently.
The bank cut its 123 savings rate from 3% to 1.5% in 2016, then lowered it to 1% in January before announcing a further cut yesterday.
Santander says that it is passing on the cuts to the Bank of England base rate, which is factored into the interest rate many savings deal pay.
The base rate was 0.75% in January and was cut to a record low of 0.1% in March.
The 123 account has a £5 monthly flat fee, which would cost users £60 a year, or half of any interest they could earn if they had the £20,000 maximum in the account.
But the deal also offers cashback on household bills of up to £180, provided they are paid through the account.
Susan Allen, head of retail banking at Santander, says: “While we have had to make a difficult decision in light of the current interest rate environment, our 123 current account continues to provide good ongoing value to customers.
It remains the only account that offers the ability to receive both interest on balances and cashback on household bills, meaning that customers can earn almost £300 per year, for an account fee equivalent to £60 per year.”
Some money commentators say the change will be enough for savers to think about leaving the bank.
John Crossley, head of money at comparethemarket.com, says: “This decision will likely be a blow to Santander customers.
“Launched in 2012, millions switched to the bank’s 123 account to take advantage of market-leading interest rates and cashback deals.
“While some benefits remain, the latest cuts may prompt some Santander customers to consider switching to a different provider.”
However, savers who want an interest-paying current account have few other options.
The same interest rate cut will also apply to Santander’s Select and Private current accounts.
This article was originally written by our sister website Moneywise.