Santander Zero: Great Idea, Useless For Most

Banco Santader

Santander, owner of Abbey, Bradford & Bingley and Alliance & Leicester, got a lot of attention last week when it announced its revolutionary Santander Zero current account, launching in January.

Why revolutionary? Well, the beauty of this is account is that it is “fee-free”. There are no charges for going into your overdraft (although of course you’ll be charged interest, but this is the relatively low rate of 12.9% – quite a bit lower than the overdraft rate charged by other banks), and there are no charges for bounced cheques or unpaid direct debits either. What’s more, you will not get charged by taking money out of ATMs whilst abroad.

It’s a welcome reaction to the forthcoming bank charge decision, which is likely to see the banks get a kicking (hopefully once and for all, although the banks could probably appeal yet again) – Santander have made their move early, probably in the expectation that they’ll have to alter their charging on current accounts eventually anyway.

Of course, there’s a big catch – you’ll have to hold (and keep holding, without going into arrears) a Santander mortgage, in order to be eligible. Abbey & Bradford & Bingley will be rebranded as Santander from January, so those with mortgages with these brands will be eligible from then – Alliance & Leicester customers will have to wait until later in the year.

It’s estimated that this will mean around 2 million people will be eligible for the account, of which a couple of hundred thousand are already current account holders with Santander. Good news for these people.

For the rest of us, whether you want to take an account out or not will depend on the state of your mortgage. If you’ve got a decent rate with another lender, it’s unlikely to be economical to switch mortgages to get a cheaper current account. Otherwise, you’ll have to do a calculation of the amount you’re likely to save in fees versus the cost of switching your mortgage, if your in a position to do so.

Of course, if you’re really organised and never touch your overdraft or incur any other charges, there’ll probably be little benefit in  switching to it.

For Santander, it’s a chance to increase their market share in current accounts using  a customer base that it already has a relationship with, and probably more importantly, it understands and knows a lot about. To offer this account to everyone would probably be a risky move.

It will be interesting to see whether other banks go down a similar route. The thought was that the bank charge ruling could see the end of free banking – Santander seem to be suggesting this may not be the case, at least for loyal customers with whom they have an ongoing relationship.

Creative Commons License photo credit: Daquella manera

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