Iona Bain
It has already been lambasted for chopping the rate on its current account for half a million customers. Now it has emerged that Santander is rejecting a number of younger applicants for the popular 123 account, leaving a black mark on their credit file and potentially harming their financial prospects.Santander first launched the 123 current account in 2012, promising to pay one per cent on balances between £1,000 and £2,000, two per cent on balances between £2,000 and £3,000 and a market-leading three per cent on balances between £3,000 and £20,000. It also offered similarly tiered cashback on household bills and council tax payments.
It quickly became a haven for savers seeking returns in a low-interest environment after the Bank of England slashed its base rate to 0.5 per cent, attracting three million customers.
However, this month’s cut in the base rate from 0.5 to 0.25 per cent, has prompted Santander to cut its top rate in half as well – from three to 1.5 per cent, which it will pay as a flat rate on all balances from November 1. Those with £20,000 in their account stand to lose £300 a year in interest.
Returns were already diminished in real terms in January when the monthly fee for the account was hiked from £2 to £5.
The move was heavily criticised by MoneySavingExpert founder Martin Lewis, who said many customers will feel like they’ve been “kicked in the teeth”.
Moreover, readers have told the Herald this week that they have been turned down for the account on the basis of their credit history, despite having no intention to use the overdraft attached to the account.
Herald reader Tom Parker, 30, said he applied for the 123 account earlier this year but was knocked back without an explanation. Having checked his credit file, he realised that a past discrepancy over his registered address may have caused the rejection, as well as the fact that he has no borrowing on record.
“I didn’t want to use the overdraft on the current account, and I really don’t want to take out a credit card at this point just to create a history.”
The rejection is now registered on Mr Parker’s credit file, possibly affecting his rating in future. That’s because Santander carries out “hard” searches on applicants’ credit files, as opposed to “soft” searches which do not show up and leave your credit rating untouched, regardless of whether you have been accepted for the product or not.Banks carry out credit checks on prospective applicants for accounts but usually only the poorest or those with serious debt problems struggle to get approved for mainstream products.
Incorrect details on your credit file (which may not be your fault), a short history at your current address, lack of borrowing history or a failure to register on the electoral roll all make refusal more likely.
Repeated hard searches and rejections for credit can undermine your credit rating, making it more difficult (or even impossible) to get approved by lenders in future and raising the interest you have to pay even if you are accepted.
Disgruntled customers have taken to Santander’s social media pages to complain of rejections for the 123 account, despite having been approved for market-leading products elsewhere. One told the bank on Facebook that he had been declined twice for the 123 current account, despite being accepted by two credit card companies following the first rejection.
A spokesman for Santander confirmed that credit searches are carried out on applicants for the 123 account and that a record is left with the credit reference agency, regardless of the decision outcome. “All customers have the right to appeal, but we would expect this to involve additional information being provided that wasn’t available for the initial decision in order for it to be overturned.”
She said “a very small number” of applications were rejected.
Customers who already have the account are being urged to sit tight despite the rate cut. Martin Lewis said savers don’t want to lose out on two and a half months of high interest. “Even at 1.5 per cent interest, right now, for those with £10,000 to £20,000, it would still be the best paying place for most to put easy access savings in.”
Other current account providers paying high interest, such as Lloyds Bank and TSB, are widely predicted to trim their rates in light of the base rate fall.
Regular savings accounts may now be the best option for those hunting good interest. The downside is that regular savers accounts usually last just 12 months. After that, you may be able to start up a new version of the account or failing that, shop around for a new rate. The best regular savers account is currently offered by Nationwide, which gives you five per cent if you switch to the building society for your main current account. You need to have paid in at least £750 a month for three months previously to qualify and you can pay in up to £500 each month.
