Current account switching incentives - are they worth it?

The new Current Account Switching Service goes live on 16 September and a number of banks are offering one-off cash incentives in a bid to attract new customers.

On the surface these incentives may appear worthwhile, but the real value is short-lived and customers may find their new bank is doing little to keep them and encourage their loyalty for the long term.
 
Santander's 1|2|3 Current Account pays cashback on household bills such as water, council tax, energy and communication bills when paid by direct debit, and interest if the account is in credit between £1,000 and £20,000.
 
Customers with household bills of around £500 a month and a credit balance of £5,000 could earn £253 a year in cashback and interest alone.  Even with the £2 a month fee deducted, that's still £229 for the year.
 
If your bills average around £340 a month, and you keep a credit balance of £2,500, you would earn around £124 in cashback and interest per year, which is £100 in your pocket once you minus the fee.
 
And 1|2|3 pays 1% cashback on Santander mortgage direct debits up to £1,000 a month, giving £120 a year.  Add that to the cashback on household bills and the in-credit interest and the returns look even better. 
 
Plus, if you're lucky enough to have a balance of £20,000 in the 1|2|3 account, you would earn 3% interest, giving you a whopping £592 a year in interest alone, which is considerably more than the £100 or £125 you might get as an upfront cash incentive from providers like Halifax or First Direct.
 
Research carried out by Santander earlier this year found that more people planning to switch in the coming year would do so for the ongoing benefits of the account rather than an upfront reward.
 
Matt Hall, Director of Banking at Santander, said: "One off cash incentives and first year interest rates might appear attractive at first but the value can wear off pretty quickly.  With Santander's 1|2|3 Current Account customers have the opportunity to continue to benefit after the initial honeymoon with a current account that continues to deliver great value, month after month."
 
With the launch of the new Current Account Switch Service, which enables the switch to complete in just seven working days, another key barrier to moving providers will be removed.  This should enable customers to switch with confidence to better value offers.
 
The service will also provide a ‘safety net' guarantee for 13 months after the switch to ensure any direct debits or standing orders are redirected to the new account.
 
In the first six months of 2013, more than 130,000 people switched to Santander.
 
The 1|2|3 Current Account
 
Santander's 1|2|3 Current Account pays cashback on household direct debits:

1% cashback on water, council tax and Santander mortgage direct debits
2% cashback on electricity and gas
3% on mobile, home phone, broadband and paid-for TV packages
 
And the following rates of in-credit interest:

1% AER on the entire balance, once the customer's balance is £1,000 or over
2% AER on the entire balance, once the customer's balance is £2,000 or over
3% AER on the entire balance, once the customer's balance is £3,000 or over (up to £20,000).
 
Find out more about the account and apply at santander.co.uk.