MSE News: Should I save in Santander's 123 account or put the money in a cash ISA?

A question about : MSE News: Should I save in Santander's 123 account or put the money in a cash ISA?

ISA season is nearly upon us, so should you open one? Or should you save in an interest paying bank account instead?...

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Should I save in Santander's 123 account or put the money in a cash ISA?

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• Errors in article:
  Quote:
• You say people with over Ј35k are ok because there is enough to max ISA and Ј20k limit in Santander, however I believe an individual can have up to 6 Santader 123 accounts. I would only invest up to the Ј80k (?) limit the government covers if the bank/building society goes bust but presumable if you have over Ј35k it would be better to open more than one Santander account?
  I believe you need to pay in Ј500 a month but in theory you could set up transfers between accounts (even if that is using an account at another bank) but setting up 2 direct debits could be an issue (I believe these have to be to an organisation as oppose to between accounts).
• When I called Santander (granted before Christmas so they may have changed the t's. & c.'s they informed me each individual can open up to 6 Santader 123 accounts.
  Was about to call to go ahead with this but by the sounds of it we will need to rethink!
• If you are (as I am) a
  non taxpaying pensioner with savings you get a full 3% from Santander ..... or if you have loadsamoney how about an HSBC Swiss account ???? (i'm joking)
• I don't want to disagree with using Santander 123 before an ISA.
  But unless I've got this very wrong: Santander do not pay 3% on the whole Ј20,000, only on the amount abve Ј3,000. With lesser % on amounts up to Ј3,000 (I recall reflecting 123 in Јthousands: Ј1k, Ј2k, Ј3k+).
  So the overall % on Ј20,000 is less that 3%.
  I did calculate what I thought the overall % to be, but can't remember where I put it and don't want to do it again right now as am trying to sort out a Will, Probate, struck-off solicitor named as Executor, IHT form, etc etc.
  By the way I have no trouble in setting up enough direct debits: for Council Tax, phone/internet, water and other utilities (these get varying % of spend back) and another d/d to pay minimum amount on my (Santander 123) credit card (which has 0% interest for 18 months from when I took it out). And yes, I normally make sure I pay off the whole credit card balance at the end of the month. But while I am getting the 0% interest on the 123 credit card (as well as the card's cash back) I'm letting the balance build up to my credit limit which they've just increased: keeping the money to pay it off eventually in my Santander 123 current account thus earning the full 3% as it gets close to Ј20k.
  Do hope I am doing the right thing...its nice to make money out of a bank - its usually the other way around!
  By the way there is no limit to the cash back you can get for paying lots of utilities/water/council taxes by d/d (I checked): so if you pay all or some of these for say an elderly parent then at least you get the 1,2 and 3 cash back for theirs.
  Keep up the great work Martin and MSE
• A BIG WARNING about the 123 account: go over Ј20,000 Ina month & you get 0.1% interest on the WHOLE balance. I put my Ј20k savings in mine, got a months interest added them the next month got nothing because that first month's interest had put me over the threshold
• The Santander 123 account pays 3% interest up to Ј20000.
  Tax will be stopped at the usual rates on this interest ( i.e. the 3% becomes 2.4% net at the normal tax rate).
  However, the account does NOT pay interest on the first Ј3000.
  So, on Ј20000, at normal tax rates, the net interest, after a
  year, would be Ј17000 at 2.4%, which is Ј408.
  In effect, the actual interest on your Ј20000 is 408/20000, which comes out at 2.04%.