Santander to offer fee-free account for home owners

Published on Thursday 19 November 2009 21:18

SANTANDER, owner of Abbey and Alliance & Leicester, has unveiled plans to shake up the current account market with a fee-free package for mortgage customers.

The announcement came days before a Supreme Court ruling that is likely to result in a cap on the overdraft fees that banks can charge.

The "Zero Current Account" will be available only to Abbey and Bradford & Bingley customers when it launches in January to coincide with the rebranding of their branches as Santander. It will be extended to include Alliance & Leicester borrowers later in 2010.

The account will levy no authorised or unauthorised overdraft fees, no cash machine charges anywhere and no foreign exchange fees. It will pay 6 per cent interest on balances up to 2,500, provided at least 1,000 is paid into the account each month, although that will reduce to 1 per cent after the first year. Interest on overdrafts will be charged at 12.9 per cent.

Santander, which has a 13.5 per cent mortgage market share, wants to convert its two million Abbey mortgage holders to current account customers. It also believes that as the account is available only to existing mortgage holders, it will both attract new borrowers and incentivise existing customers to stay put.

Antnio Horta-Osrio, chief executive of Santander UK, said: "Santander is uniquely placed amongst UK banks to change the way it does business, and our new approach is one based on simplicity: the more business you do with us, the more we will offer you in return."

Pierre Williams, head of research at MoneyExpert.com, said: "Santander is turning up the pressure in the current account market and this could be the shape of things to come in banking."

However, Kevin Mountford, head of banking at moneysuper market.com, warned customers against being swayed into switching larger financial products. "This is not a sufficient saving to justify switching a mortgage where you could face additional fees," he said.

While Abbey's fixed-rate and tracker mortgages are currently competitive, its standard variable rate mortgage is less so, at 4.24 per cent.

Justin Modray, director of financial advice website Candid money.com, said: "Many of these customers could likely save thousands of pounds by moving to a better rate elsewhere, more than outweighing any bank charges they're likely to incur on their current accounts over the life of their mortgage."

Those overdraft charges may fall after the Supreme Court delivers its ruling on the long running overdraft fees test case on Wednesday. The test case, which began in June 2007, was brought by the OFT against eight banks, including Santander, to determine whether it could rule on the fairness of the charges.