Santander easy access savings to fall to 4.2% next week – should you move your money?

Savers who opened Santander’s 5.2 per cent easy access account in September will see their account rate drop to 4.2 per cent from Monday.

The banking giant notified its customers by email in March that the rate would be reduced by 1 percent.

Santander launched the account on September 4, 2023 and it lasted just under two weeks as it turned out to be one of the most popular savings offers of 2023.

In fact, it was removed from the market five days earlier due to strong demand and is no longer open to new savers.

Now, savers face a decision: move their easy-access savings to an account with a better rate, or stay there…

Stick or turn in Santander?

Currently, savers can open an easy-access account by paying 5 per cent, but it’s worth noting that the 4.2 per cent deal is still better than most of Santander’s big banking rivals.

Additionally, with millions of checking account customers, many find it useful to hold money remotely and therefore won’t see a one percentage point drop as big enough to transfer their cash.

However, after 12 months, the Santander easy access account matures into a daily savings account that pays just 1.05 percent as it is a variable account.

This means that come September, savers will face a dismal interest rate of just 1.05 if they don’t move their savings before then.

The best easy access account on This is Money’s best buy tables is Paragon Bank’s dual access account that pays 5.05 percent.

But keep in mind that you can only withdraw money twice over the course of 12 months.

If you make a third withdrawal, the rate will drop to 1.5 percent.

Rachel Springall, of Moneyfacts Compare, said: “Savers may not want the hassle of switching, but it’s really quick and easy to do online, plus they may find some of the top easy access accounts pay around 5 per cent. “.

‘Some easy access accounts may restrict the number of withdrawals someone can make, so they might not be the right choice for those who want complete flexibility with their cash.

“As an example, Paragon Bank pays a competitive 5.05 percent, but only allows two withdrawals in 12 months, so careful planning is a must.”

Kent Reliance has an easy-access account that pays 4.96 per cent, which has no withdrawal restrictions and can be opened online or in a branch.

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Flexible Isas to the rescue?

If you want more flexibility than just two withdrawals, it’s worth considering a Flexible Cash Isa as a new home for your savings.

Some flexible Isas offer higher fees than the best easy access accounts. Chip has a flexible, easy-to-access Isa that pays 5.1 per cent, while Zopa offers 5.08 per cent.

A flexible Isa allows savers to avoid tax by keeping any savings they may need in their Isa fund tax-free, something savers are often reluctant to do even if they weren’t maxing out their £20,000 allowance each year.

A flexible Isa allows you to withdraw money from your Isa and, more importantly, pay it back without losing your annual allowance, as long as you pay it back in the same tax year. You can’t do this with a non-flexible Isa.

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For example, if you put £20,000 into a cash Isa and then withdraw £5,000, in a non-flexible Isa you lose that £5,000 of your allowance.

With a flexible Isa you can put it back and not lose your allowance.

But if you don’t replace the cash withdrawn before the end of the tax year, you will lose the ability to put the balance back into your Isa without it affecting your annual allowance.

Flexible Isas could be especially useful for savers right now.

Since interest rates have risen so much over the last two years, many more savers will pay tax on the interest they earn on their savings, as they are using their personal savings allowance with smaller deposits.

When rates were low this did not matter as much as the personal savings allowance protected many from tax on their interest, although the £1,000 allowance is halved for higher rate taxpayers and eradicated for taxpayers with additional fees.

But now, with the best easy-access savings accounts paying 5 per cent or more, a basic rate taxpayer with £20,000 saved would start to lose interest in tax.

Take Paragon’s easy access account as an example. Someone depositing £20,000 into this easy-access account would earn £1,010 interest in a year, so even a basic rate taxpayer would exceed their annual tax-free savings allowance of £1,000 with a £20,000 deposit.

A higher rate taxpayer (someone earning between £50,271 and £125,140 a year) would easily exceed their lower allowance of £500.

On £1,010 of annual interest, a higher rate taxpayer gets the first £500 tax-free, but will pay 40 per cent tax on the remaining £510, meaning they would end up with £806 after tax.

Even a basic rate taxpayer would end up paying £2 in tax on their savings with this account, leaving them with £1,008.

The savings tax reduces Paragon Bank’s brilliant Best Buy Easy Access Account rate to 4.04 percent if you’re a base-rate taxpayer and 3.03 percent if you’re a higher-rate taxpayer .

Springall said: “The time has come for savers to check and see if the Santander account is still the right option for them.” Savers will need to carefully check the terms and conditions of other accounts before transferring their cash.

‘Whatever account savers choose, any clear indication of an imminent base rate cut could cause market turmoil, so rates could fall on rates offered on easy access accounts or even make products go off the market.

Savers should closely monitor the higher rate tables and switch quickly so as not to be disappointed.’