Santander is to increase the monthly price of its popular 123 account, blaming the rising cost of running a bank for a move which will hit 3.6 million customers.
From January 2016, the cost of the current account will rise from £2 a month to £5, while fees on the linked credit card will go up from £2 to £3.
The 123 account, which was launched three years ago, has been the most popular deal for people moving their current account, attracting hundreds of thousands of customers through the industry switching service. Rival bank Lloyds estimates that Santander now has 20% of the current account market by value.
The 123 account offers cashback on purchases and an interest rate of up to 3% on balances up to £20,000, making it attractive to savers as well as consumers looking for an everyday bank account.
However, Santander said the financial landscape “has changed significantly” since it launched the account, and that to maintain the current interest rates it was necessary to increase the fee.
“Savings rates have fallen and remained low, and the ongoing costs of running a UK bank have increased as a result of changes to banking legislation and regulation,” it said.
It added that the changes might mean that some customers would need to consider if the account and credit card were still right for them.
Reza Attar-Zadeh, head of retail products at Santander, said: “External market factors mean we’ve had to make some changes to ensure the products continue to meet the needs of our customers, but also our shareholders.”
Attar-Zadeh said the vast majority of customers would “still be able to generate a good monthly benefit despite the changes”, and that he still expected people to be attracted to the account.
The current account changes will take effect on 11 January 2016. Only the fee will change – the cashback rates will remain the same, as will the interest on balances. Customers with more than £1,000 in the account receive 1% interest, those with more than £2,000 receive 2%, and those more than £3,000 earn 3%.
The fee changes to the 123 credit card will happen on the same day for existing customers, but new applicants taking out a card from 16 September will face a £3-a-month cap on the cashback they can earn in each category. This will limit the maximum cashback they can earn to £6 a month.
Figures from Santander show that an account holder whose spending on bills is in line with UK averages who holds a £1,200 balance in their account will see the amount they earn drop from £102 a year to £66. Someone who makes the same purchases but holds a balance of £12,500 would earn £424 before tax, rather than £460 now.
