Santander’s easy-access piggy bank drops to 4.2% next week. Do you need to move your money?

Savers who opened Santander’s easy-access 5.2 percent account in September will see the interest on their account fall to 4.2 percent from Monday.

The banking giant informed customers by email in March that interest rates would be reduced by 1 percent.

Santander launched the account on September 4, 2023 and its term was just under two weeks, as it proved to be one of the most popular savings deals of 2023.

It was withdrawn from the market five days early due to strong demand and is no longer open to new savers.

Now savers are faced with a decision: transfer easily accessible savings to an account with a better rate, or stay put…

Hold or run on Santander?

Savers can currently open an easy-access account that pays 5 percent, but it’s worth pointing out that the 4.2 percent deal is still better than most of Santander’s major banking rivals.

Furthermore, with millions of checking account customers, many find it useful to have money at a distance, so they won’t see the drop of one percentage point as big enough to move their money.

However, after twelve months, Santander’s easy-access account grows into an everyday saver paying just 1.05 percent as this is a variable account.

This means that savers will receive a bad interest rate of only 1.05 in September if they do not 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, which pays 5.05 percent.

But be warned: you can only make two withdrawals over the course of 12 months.

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

Rachel Springall from Moneyfacts Compare said: ‘Savers may not want the hassle of switching, but it is very quick and easy to do online, and they can find that some of the leading easy-to-access accounts pay around 5 per cent.

‘Some easy-access accounts can limit the number of withdrawals a person can make, so these may not be the right choice for those who want complete flexibility with their money.

‘For example, Paragon Bank pays a competitive 5.05 per cent but only allows two withdrawals within 12 months, so careful planning is a must.’

Kent Reliance has an easy-to-access account that pays 4.96 percent with no withdrawal restrictions and can be opened online or in a branch.

> Get 5.78% interest with this account with a 365-day notice period that beats one-year fixes

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 rates 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.

A flexible Isa allows savers to save tax by keeping the savings they need in their tax-free Isa pot – something savers are often reluctant to do, even if they weren’t maxing out their £20,000 a year savings.

With a flexible Isa you can withdraw money from your Isa and, importantly, put it back in without losing your annual allowance – provided you pay it back in the same tax year. This is not possible with a non-flexible Isa.

> How a flexible Isa can help keep as much and the best pot as possible tax-free

For example, if you put £20,000 into a cash Isa and then take £5,000 out, with a non-flexible Isa you will lose that £5,000 from your benefit.

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

But if you don’t replace the money withdrawn at the end of the tax year, you’ll lose the ability to return the balance to your Isa without affecting your annual allowance.

Flexible Isas can be particularly useful for savers at the moment.

Now that interest rates have risen so much over the past two years, many more savers will pay tax on the interest they earn on their savings, because they use up their Personal Savings Allowance with smaller deposits.

When interest rates were low this didn’t matter so 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 higher rate taxpayers.

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

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

A higher rate taxpayer (someone earning £50,271 to £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 is taxed at 40 per cent on the remaining £510, meaning they 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 cuts the shiny rate on Paragon Bank’s easy-access best-buy account to 4.04 percent if you’re a taxpayer at the basic rate, and to 3.03 percent if you’re a taxpayer at a higher rate.

Springall said: ‘Now is the time for savers to check whether the Santander account is still the right choice for them. Savers should carefully check the terms of other accounts before transferring their money.

‘Whichever account savers choose, any clear indication of an impending base rate cut could trigger unrest in the market, driving rates on easy-to-access accounts down or even causing products to exit the market.

Savers should keep a close eye on the top interest rate tables and switch quickly to avoid being disappointed.’