Santander cuts interest by 1.5% on 123 account

Millions of customers with Santander bank accounts are to receive a cut of 1.5% in the credit interest they are currently paid.

Since March 2012 those with up to £20,000 in their 123 account have earned 3% in savings interest a year.

However from 1 November they will now receive just 1.5%.

Santander said the changes were being made "due to the market expectation of interest rates staying lower for longer".

Earlier this month the Bank of England cut base rates from 0.5% to 0.25%, and signalled that there could be further cuts ahead if the economy worsens.

Santander said that market rates had fallen considerably since the account was first introduced.

However experts have warned account holders not to act hastily, as 1.5% is still amongst the best instant access savings products on the market.

Competitors are also expected to follow suit.

"Clearly the economics no longer stacked up for Santander, but with base rate teetering towards zero it may not be the last bank to trim its in credit current account rate," said Andrew Hagger of Moneycomms.co.uk.

Customers with less than £1,000 in their 123 accounts will now qualify for interest payments, which they did not enjoy previously.

Santander will also raise the cost of an arranged overdraft, from January 2017.