Santander set to extend its fee-free account

The Spanish banking giant launched its Zero Current Account earlier this year to coincide with the rebranding of its Abbey and Bradford & Bingley businesses, but only made it available to Santander mortgage customers.

But it said this week that it is extending the eligibility criteria from Monday to include people who have a Santander investment product.

It said the move means around 2.5 million people in the UK will be eligible to open one of the accounts.

The account does not have authorised or unauthorised overdraft charges, it does not levy fees for payments that bounce, and customers will not be charged to make cash withdrawals or purchases abroad. It pays interest of 6 per cent for the first year on balances of up to 2,500, providing at least 1,000 is paid into the account each month.

The group made no secret of its plans to expand its market share by undercutting its rivals through offering market leading products, and by cross-selling as many different products as possible to existing customers.

It also waived the 3 per cent balance transfer fee for mortgage and current account customers who take out its Zero credit card, and it does not charge booking fees on mortgages for people who hold their main current account with the group.

Santander said it is able to offer more competitive products through improving its efficiency at a faster rate than its UK rivals.

Since taking over Abbey, Santander reduced the cost-to-income ratio – a key measure of banks' efficiency – from having to spend 70p for every 1 of income generated to spending just 40p.

The average cost-to-income ratio across all UK banks is around 55p for every 1 brought in, giving Santander a considerable competitive advantage.

The group recently reported a 30 per cent rise in annual profits at its UK arm to 1.54bn for the year to December 31.