(Disclosure: I work in retail banking. I do not now nor ever have worked for Santander or the companies it bought. This is a public service announcement.)
Savings rates are a joke right now. The banks and wholesale markets can get cheap money from the Government and Bank of England: they don’t need to pay us a decent rate of interest to attract our funds. The Government is schizoid: it wants us to save for our pensions, but it wants us to spend, spend, spend so that the economy will recover, and preferably on VAT-able items so its tax take will go up. Good luck squaring that circle.
Very few people have large amounts (more than £50,000) of cash-based savings. I have nothing like that and still shuffle my money around once a year, with the main aim of trying to get as much as possible into an ISA so I avoid tax. 1.5% tax-free equates to 2.5% gross. Go find 2.5% anywhere.
Well, first there's 4% on up-to £5,000 from the Club Lloyds current account. You need to pay in at least £1,500 every month (which puts it past about half the population), but you don’t have to leave it there, so you could transfer it from your present current account and then spend it. Push £5,000 in, set up a standing order and you’re done. You may think it a bit too much fuss for £5,000.
So then there’s Santander’s 123 account, which gives 3% up-to £20,000, and cashback on Council Tax, Telecoms, Water, Gas, Electricity and other bills. If like me you’re living in a former People’s Republic of London, getting cashback on Council Tax alone feels like some kind of symbolic revenge. Santander’s web site has a calculator which you should look at as soon as you’ve finished reading this.
You need to transfer in at least £500 a month, set up five direct debits and have at least £1,000 on deposit before the benefits kick in. My guess is that those five DD’s are a carefully-chosen obstacle - it feels like a number someone researched. Santander offer a current account transfer service, and my guess is that many people will prefer to do a full transfer than go through what they think is the trouble of changing the details on five DD’s.
Changing the bank details on your DD’s is as simple as calling the council / water company / electricity company / telco etc and telling them you want to change account that pays the DD. They will ask for identification – I didn’t have my account numbers with me and it still all worked - and the 123 account sort code and account number. Done in a couple of minutes, though you may need a headset to make it easier to wait until an operator becomes available. My telcos even let me change the DD account details online.
You need to delete the DDs in your original current account once they have been paid for the current month. That doesn’t take long to do online. If you are the last person left in the UK who doesn’t do online banking, now is a good time to start.
Applying for a 123 account online takes about 10 minutes and Santander do an electronic credit check. I got an e-mail confirming my application about ten seconds after I clicked Submit and a confirmation of getting the account about a minute later. As part of a security process they send the account details and multiple-part security letters over a period of about two weeks.
It sounds like a lot of fuss, but it’s a couple of hours at most and will gain you about £200 or so (depending on how much money you have and the size of your bills) over letting your money rot at 0.5% somewhere. When was the last time you were paid £100 an hour?
It’s incumbent on as many of us as possible to remove money from savings accounts and toss it into a high-interest current account. Until lots of us do, banks won’t raise their savings rates.
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