The spate of interest rate rises in the UK since December 2021 has had a substantial negative impact on many mortgage holders with variable-rate loans. Many have pointed out that lenders are swift to apply the rate rises to borrowers but fail to do the same when it comes to those with savings accounts and current accounts. However, it has been revealed that one of the UK’s leading High Street banks has now upped the interest rate on its flagship current account.
With competition between providers increasing, Santander has increased the interest rate paid on its 123 accounts. This has increased from 1.50% to 1.75% for all 123, Select, and Private current accounts in credit. The new rate has been implemented this week and will be applied automatically for eligible account holders. The new rate means that accountholders could make over £347 per year in interest. In addition, they can earn cashback on specified household bills that they pay by direct debit.
Steady interest rate increases to accounts
The interest rate on these accounts has steadily risen as the base rate has increased. In recent years, the rate of interest paid has dropped due to the base rate falling to historic lows. However, with the base rate rising from 0.1% at the end of last year to 3% this month, the interest rate on these accounts has increased several times over recent months.
Despite this, officials from Santander said that the rate on these current accounts does not follow the Bank of England base rate, and it is variable. Santander is one of several banks to have upped the rate of interest paid on deposits, with a range of banks increasing rates on savings and current accounts to entice new customers.
Some leading banks have also increased their cash reward offers to those prepared to switch providers. This includes HSBC and Nationwide Building Society, which are now offering consumers £200 cash to switch to their current accounts from their existing provider.
According to Rachel Springall from Moneyfacts.co.uk, this is good news for current account customers and savers.
She said: “As interest rates continue to rise it’s good to see providers enhancing their current account offerings to entice new business. A credit interest-paying current account can be a convenient way for consumers to earn interest on their in-credit balance and the Santander offer has a high threshold of £20,000 unlike some of its peers.”
Springall added: “Away from current accounts, customers can earn even more interest by using an easy access account, for an account with unlimited withdrawals with just a £1 deposit they can earn 2.52% gross with Tandem Bank, which has a maximum investment of £250,000. Those consumers looking at current accounts with benefits may find the cashback offer from Santander enticing, particularly amid a cost-of-living crisis where every penny counts, but it is capped at £5 per month for each category.”