The current account that beats the best savings accounts

by Lovemoney Staff ReenaSewraz on 14 January 2013  |  Comments 8 comments

Can the 3% credit interest available on the Santander 123 Current Account beat the best savings options around at the moment?

The current account that beats the best savings accounts

Savings have been in the doldrums for some time now. Each day we receive updates reporting yet more rates have been slashed or accounts withdrawn.

Many lay the blame on the record low base rate, now in its 46th consecutive month, as well as the Funding for Lending Scheme introduced in 2012. This combination has enabled us to borrow cheaply with low rates on personal loans and mortgages, but has virtually annihilated the rates we get on our savings.

With no rise in the base rate predicted anytime soon and the Funding for Lending Scheme sticking around until 2014, now is the time to start thinking creatively on how to protect your pot from paltry rates and the eroding affects of inflation (currently 2.7%).

According to financial information website, , only four accounts (which are all ISAs) can match or beat inflation for taxpayers at the moment. So now really is the time for some new ideas.

One we've been debating for a while now is the value of putting savings into a current account that pays a good level of in-credit interest. The current market-leading rate comes from the Santander 123 Current Account which pays 3% on balances from £3,000 up to £20,000.

So let’s see how the market-leading savings accounts stack up.

123 vs. easy access Cash ISAs

Let’s start with the first port of call for savers – a Cash ISA.

When you take out an ISA you’re instantly 20% better off if you’re a basic rate taxpayer or 40% better off if you’re on the higher rate of income tax, as these accounts pay interest tax-free.

According to Moneyfacts the average rate on an easy access Cash ISA at the moment is 1.50%. The market-leading account comes from M&S Money with its 2.75% Advantage Cash ISA. But this account is to be withdrawn from sale on the 21st of January 2013, and for those that take it out in time, the rate is scheduled to drop to 2.25% on the 6th of March 2013 anyway.

The next best rate I could find comes from Selftrade. The Cash ISA Issue 1 pays 2.51% tax-free. So let’s see how the Santander account compares:


Min deposit

Gross rate

Net basic rate

Net higher rate

Selftrade Cash ISA Issue 1


2.51% (includes fixed bonus of 1.71%)



Santander 123 Current Account





As you can see, because ISA rates aren’t impacted by tax the Santander 3% offering doesn’t do too well up against Selftrade's Cash ISA Issue 1.

However, the ISA comes with a fixed rate bonus of 1.71% which will fall away after 12 months. The variable rate will fall from 0.9% at the end of January to 0.79% and is paid monthly.

Going for the Santander 123 Current Account removes the stress of moving money around, offering a more upfront rate with no temporary bonus. That said it is always a good idea to take advantage of your tax-free allowance and build up a tax-free pot.

123 vs. instant access accounts

But after you’ve reached the limit on a Cash ISA you might want to keep any other savings flexible via an instant access savings account.

The best on the market at the moment comes from the Post Office with its Instant Saver which pays 2.1%. Believe it or not this rate is pretty beefy when you consider the average rate on an easy access account is just 0.85% today, according to Moneyfacts.

So how does the 123 account stack up against this market leader?


Min deposit

Gross rate

Net basic rate

Net higher rate

Santander 123 Current Account





Post Office Instant Saver


2.1% (includes 2% bonus for 12 months)



It’s clear to see that Santander’s rate completely blows the Post Office out of the water; it pays a better rate that is free of any temporary bonus. So the best home for your savings in this case would be with the 123 Current Account.

123 vs. fixed rate bonds

In general locking up your money for a year or more gives you access to better rates.

The average one-year bond at the moment pays 1.95%, two-year bond 2.25% and five-year bond 2.53%, whereas instant access accounts only pay 0.85% on average and no notice cash ISAs 1.5%, according to Moneyfacts.

So can the best fixed rate bonds give the Santander 123 Current Account a run for its money?


Min deposit

Gross rate

Net basic rate

Net higher rate

FirstSave Five-Year Fixed Rate Bond 1st Issue





Santander 123 Current Account





Islamic Bank of Britain Sharia'a Compliant Two-Year Fixed Term Deposit





Wesleyan Bank One-Year  Fixed Rate Deposit





As you can see the First Save Five-Year Fixed Rate Bond is the top paying account for both basic rate taxpayers and those on a higher rate.

But it hardly seems worth locking your cash away for five years when the 123 account pays just 0.04% or 0.03% less and offers instant access.

Elsewhere the market-leading two-and one-year bonds pale in comparison to the Santander account. The top one-year rate comes in way below the current account while the two-year bond is only able to match it.

At the moment it doesn’t seem worth locking up your cash when you can leave it to grow at an equal or better pace than the best bonds on the market.


It’s a hard to stomach that market-leading savings accounts, apart from a few top Cash ISAs, can't cut it against a current account.

There's little doubt in my mind that the Santander 123 Curent Account comes out better than the best instant access account and fixed rate bonds at the moment. But before you sign up here's a round up of the pros and cons to give you some more food for thought about whether the account is worth it.


  • As well as generous in-credit interest tiers you also get tiered cashback up to 3% on bills you pay for via direct debit.
  • You have easy access to your pot.
  • Setting up a 123 current account gives you access to the 123 credit cashback card fee-free. 


  • You need to pay in at least £500 a month, set up two direct debits on the account and pay a £2 monthly fee to get all the benefits of the account.
  • You can only earn the top tier 3% interest rate up to £20,000, whereas other savings accounts let you save much more.
  • Many of the market leading savings accounts give you access to the best rate for deposits as low as £1 up to £1,000. Santander requires £3,000 to 'start saving’ at 3%. Balances from £1,000 earn just 1% and balances from £2,000 get you 2%. Anything below £1,000 does not earn any interest in the 123 account.
  • Having your savings mixed in with your current account might be too much temptation and you could end up dipping into your pot more than you would do normally if it was kept in a separate account.

What do you think?

Could the Santander 123 Current Account be the best kept secret in savings?

More on savings:

The top fixed-rate savings bonds

The UK's best Cash ISAs

Top Cash ISAs for transfers

The best instant-access savings accounts

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Comments (8)

  • silkycat
    Love rating 49
    silkycat said

    Firstly I already had a 123 Account open to take advantage of the cashback benefits which are well worthwhile if you pay your diect bebits through this account. I also took the option of the 123 Credit card which is fee free for 12 months and gives 3% cashback on fuel. I shall close it at the end of 12 months as it has a £25 annual fee which would leave me out of pocket as I already have a card which gives me 1% on everything. So my current gain is effectively 2% on fuel.

    You do need to factor in the fact that 3% interest is on £3k to £20k so you need to have £3 in at the lower rates to get the benefit. However I still think it worth it given the very poor rates available elsewhere.

    The review doesn't mention that 123 Account holders have exclusive access to an 18month bond at 2.5% which is also worth considering if you have sufficient funds for both.

    Elsewhere the Post Office have a 30 day notice saver at 2.25% and Britannia have an ISA at 2.1%.

    It will be interesting to see if there are any tempting offers around at the end/beginning of the tax year to get us to use up or start ISA allowances. I have a feeling it won't be as high as some of the 3.5% - 4% offers around last year.

    Report on 14 January 2013  |  Love thisLove  1 love
  • Huboman
    Love rating 1
    Huboman said

    Silkycat, you are so spot on, excellent Fin Management - I will be ditching my 123 Credit card at the anniversary point as well! You could top what you get from the Banks by paying £1000 monthly into a HBOS / Halifax 'Reward' account thereby getting a £5 per month bonus. That only needs to be in that account for a day to attract the bonus - you then ship out £500 into your 123 Account. If you have spare cash (savings) and can save over the £3000 mark, stick that money in the 123 account as well as its far better than anything else on the market at the moment.

    Report on 14 January 2013  |  Love thisLove  1 love
  • MikeGG1
    Love rating 909
    MikeGG1 said

    I seem to remember that I posted the information about the 123 account in a comment about another article only a week or so ago. My post must have had at least one reader!!!

    The credit card fee is £2 per month just like the current account and I will probably ditch mine after the first free year, but i will first check whether the cashback is sufficiently more than I would get on my other cashback card (AMEX) to justify the monthly fee. I rarely use public transport as I am a pensioner so don't have a journey to work and there are no buses in my village.

    Depending on how high your council, water, gas, electricity, phone, broadband & TV costs are, you can get well over the 3% on the current account. I get nearly £12 cashback against the £2 fee, so that is a tax-free benefit of £10 per month.

    The benefit of switching from taxed account to ISA is not the 20% that was quoted, it is 25% (100/80=1.25). For a 40% taxpayer it is 66.7% rather than 40% (100/60=1.66666).


    Report on 15 January 2013  |  Love thisLove  0 loves
  • MoneyWacha
    Love rating 0
    MoneyWacha said

    What about the 4% offered by Lloyds TSB vantage account?

    Report on 16 January 2013  |  Love thisLove  0 loves
  • orangecat
    Love rating 7
    orangecat said

    All very well for Santander to offer way above saving rates, but how safe is your money? They are notorious for loosing customer’s savings. For example “Rip Off Britain 14th Jan 2013"

    Complainant stated she had £25,000 in her Abbey Account for past nine years, but when she went to make a withdrawal, Santander had no record of it, despite a passbook clearly stated no withdrawals had been made in this time. This is just one example of how good they are at treating customers.


    Report on 16 January 2013  |  Love thisLove  0 loves
  • velocibob
    Love rating 1
    velocibob said

    I already have a Santander 123 account with the maximum £20000 in it. I also have a Branch Saver account with them, but the present interest rate is falling to 0.5% on the 26th of March. I was informed by a member of staff from my local branch of Santander, that I could open up another Santander 123 account. I would have to pay £500 in to it monthly, plus a further charge of £2 per month, and have 2 Direct Debits connected to it. As I can't afford to pay £500 in to this extra account monthly. The member of staff suggested that I set up a Direct Debit to transfer the £500 from my Barclays account to the new Santander account, only to transfer it back to Barclays a few days later.

    What is your opinion about this? Am I just taking advantage of a loophole, or would I be sailing to close to the wind? Also, if possible. Is it worth it for a 1% increase in interest, over easy access accounts available at present?

    Report on 17 January 2013  |  Love thisLove  0 loves
  • MikeGG1
    Love rating 909
    MikeGG1 said


    1% on £20,000 is £200 per year. I reckon that is worth doing. I wouldn't expect that you could transfer between your accounts by DD but Standing Orders should do just as well.

    While you are churning collect a fiver a month from Halifax.

    Your money could go Barclays > Santander 1 > Halifax > Santander 2 > Barclays or similar.

    Are you married? My wife and I have 3 between us. A sole account each and a joint account.


    Report on 17 January 2013  |  Love thisLove  1 love
  • r
    Love rating 98
    r said


    I had an Abbey account for 40+ years, first as a starter account for my first mortgage. I didn't have a lot in it and decided to close it because I had not received any interest for over a year. They (now Santander) had, some years previously, transferred the cash into another persons account with the same surname. They wanted me to find the other person and bring him to the branch to authorise withdrawal of my own money. Needless to say, this went right to the top and I did get it back eventually. Even then, the branch which had been instructed by their head office to pay me out queried why my signature was not the same as the other person's. Absolutely unbelievable! ! !

    They did pay compensation but it took months to sort out.

    Avoid !


    Report on 20 January 2013  |  Love thisLove  0 loves

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