Wherever you look these days there seems to be a Santander advert promising £100 and 5% annual interest if you switch your current account to them. Is this a deal too good to miss or is Santander simply trying to bribe you into moving to a mediocre current account?
Let’s start by taking a look at the offer.
The £100 bonus for switching your current account to Santander is paid within three months of opening the account provided you pay in at least £1,000 a month and set up at least one active direct debit (which makes a payment) within 11 weeks. To qualify you must not hold, or have held in the last three months, any current accounts from Santander, Alliance & Leicester, Cahoot or Cater Allen.
The 5% gross annual interest, paid on balances of up to £2,500, is fixed for the first year before falling to 1%. Interest on amounts over £2,500 or, if you pay in less than £1,000 per month, is just 0.1% and this will fall to 0% from 5 October 2010.
This means if you’re lucky enough to maintain a balance of £2,500 over the first year you’ll earn interest worth £125 before tax. Nice. Hold a more realistic average balance of £500 and you’ll earn £25 – ok but not very enticing. Add in the £100 bonus and the maximum upside from opening the account is £225 over the first year. Thereafter the rate of 1% is reasonable for a current account but nothing to write home about.
So the offer to switch looks good over the first year. But what about the current accounts?
There’s a choice of the ‘Preferred In-Credit Rate’, Zero and Reward accounts. The Reward account offers benefits including travel insurance and breakdown cover for £10 a month, an indifferent deal, while the Zero account is competitive but only available to existing Santander mortgage or investment customers. So the Preferred In-Credit Rate account is likely to be the default option for most customers taking advantage of this offer.
Santander reduces the authorised overdraft rate to 0% over the first four months, but it reverts to a hefty 19.9% on this account thereafter. Unauthorised overdrafts are charged at 28.7% with a £25 monthly fee. And try to pay for something when there’s not enough money in your account and you’ll be slapped with a fee of up to £35. The associated debit card charges a currency fee of 2.75% on overseas transactions and you’ll be charged 1.5% (minimum £1.99) when withdrawing cash from a machines or a bank overseas.
All in all, the Preferred In-Credit Rate account is not a very attractive current account if you’re likely to go overdrawn or spend overseas. The fees are quite high and better deals can be had elsewhere. The Zero account is a better bet, If you qualify, as the overdraft rate is 12.9% and there are no fees for unauthorised overdrafts/payments or foreign transactions.
If you qualify for a Santander Zero Account then this is a pretty decent offer to switch across. Otherwise it’s likely you’ll end up in the Preferred In-Credit Rate or Reward accounts. Neither is particularly attractive, reducing the appeal of the switching deal.