Santander has announced it will cut the interest rate on its flagship 123 current account and increase arranged overdraft charges — the latest high street bank to do so.
From May, the bank will reduce the interest rate on its 123 and Select accounts from 1.5 per cent to 1 per cent on balances up to £20,000.
The changes mean a customer with a £20,000 balance will earn less than £200 per year in interest.
Santander will also limit cashback on household bills to a maximum of £15 per month, and introduce a single interest rate of 39.9 per cent for arranged overdraft borrowing.
Despite cutting the perks, Santander said it would not scrap the £5 monthly charge for the 123 account.
The bank said that the changes were down to a “low interest rate environment” and the “financial impact of regulatory changes in the banking industry”.
Savers have endured a string of rate cuts on popular savings products in the past year as speculation mounts that the Bank of England could cut interest rates in 2020.
Other banks including HSBC and NatWest have also increased the rate of interest charged on overdrafts in anticipation of regulatory reforms in April that will ban extra charges on unauthorised borrowing.
“While we have had to make some difficult decisions in the current environment, our current account range remains very competitive,” said Susan Allen, head of retail banking at Santander.
The bank will be writing to all affected customers to explain the changes.