The news comes as the Supreme Court prepares to rule on the controversial bank charges test case on Wednesday 25 November. Seven banks including Abbey, plus one building society, have fought to prevent the Office of Fair Trading from assessing the fairness of overdraft fees.
The new Santander Zero current account will not charge individuals a fee when they exceed their overdraft limit, or apply charges to customers’ accounts for paid (or unpaid) items that take them beyond it.
Fee-free banking
Customers with the Santander Zero current account will instead be charged an interest rate of 12.9% when they go overdrawn, irrespective of whether their negative balance stays within pre-arranged limits.
Zero account holders will also be able to use their debit cards overseas without incurring extra charges or having to pay foreign exchange fees, and they will be able to withdraw cash from ATMs in other countries without paying Santander for the privilege. Bankers’ drafts will also be available for free to Santander customers with Zero current accounts.
Furthermore, account holders will also earn an in-credit interest rate of 6% in the first year, payable on balances of up to £2,500 - although this rate will only be offered to customers who credit their accounts with at least £1,000 each month.
Mortgage customers only
However, Santander has made it clear that only customers who have mortgages with the bank will be eligible for the Zero current account.
The account will be open to Abbey and Bradford & Bingley mortgage customers when their banks become part of the Santander brand in January 2010. Alliance & Leicester mortgage customers will be able to apply for the deal when their bank is re-branded as Santander later that year.
Antonio Horta-Osorio, 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."
Find the best bank account for you
Which? Money expert Rebecca Fearnley commented:
"If you are already a Santander mortgage customer, you may well find the Zero current account tempting. Its simple charging structure is appealing and the interest rate payable on overdrafts is low in comparison with the fees many banks charge.
"While it’s to be hoped that Santander’s move inspires other current account providers to improve the deals they offer consumers, it seems a real shame that Santander has decided to limit this offer to mortgage customers only. Ideally, we'd like to see all Santander customers benefit from lower overdraft charges and greater transparency.
"Furthermore, the promise of becoming eligible for this current account shouldn’t tempt consumers into taking out a mortgage with Santander unless they are certain it’s the right deal for them. Many of its benefits can be obtained elsewhere - for example, some credit cards offer fee-free overseas spending."
