Death of the Santander 123 account

Where do I put my savings now?

I've got some bad news for you. In case you didn't hear the Santander 123 current account is cutting its interest from 3% to 1.5%. This is a huge 50% cut in the interest. The Santander 123 current account was effectively the last place of refuge for hard hit savers over the last few years.

Without taking on additional risk there is virtually no where to earn a return on your cash in the current market. Bank of England interest rates are now at an all time low of 0.25%. As a consequence the borrowers are having a feel day and continue to borrow money cheaply whereas savers are struggling to find a return.

When to hold cash

I have had my cash in the Santander 123 current account for the last year and have held a substantial portion of my cash in that account, about £15,000. This earned me about £40 in interest each month and will be sorely missed. I've been thinking about an alternative and to be perfectly honest I can't find any. There are the odd accounts that offer 5% on cash holdings but that's only for the first £2,000. Unfortunately, there isn't really a replacement for the Santander 123 current account.

The question is, do I just keep my money in the account earning 1.5% or do I take on some more risk? I have no immediate large outgoings. I recently bought my first flat with my fiancé. We aren't planning on moving for at least five years. In theory, five years appears a decent span of time in which to invest over. However, given the amount of cheap money lying around and recent leaps in the stock markets around the world assets appear overvalued. I keep telling myself that I'm holding cash on the side ready to pounce when share prices take a dive. The problem is, when is this going to happen? 

Fund managers appear to be in a risk-on state. Deals and IPOs are still common place. Even the threat of Britain leaving the European Union has now been all but ignored by the stock market. The FTSE100 in the UK is now nearing its all time high. My gut is telling me that now is not the greatest time to be investing in the stock market.

What are the alternatives to investing in the stock market?

Property is unlikely given that I probably don't have enough for a deposit (certainly not in London). Furthermore, I don't want to be invested in an illiquid asset and then potentially struggle to sell it once we seek to move house.

Bonds yields are incredibly low at the moment and aren't attracting me. The last refuge appears to be peer to peer lending. The only problem is that you can't wrap up your investments in a tax free ISA wrapper, meaning that your returns are taxable....Ho hum....where to put my money?

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