Cashback current accounts

Make the most of your money by comparing cashback current accounts[1]

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What is a cashback current account?

A cashback current account is one you use for day-to-day banking, that also gives you money back as you spend it.

This type of account is sometimes known as a cash reward current account.

The cashback you get will typically be a percentage of your spending, and the amount you can earn usually depends on how and where you spend your money.

Are there different types?

Cashback current accounts can vary in how they work and when you can earn money on your spending.

Some accounts will give you:

Cashback for paying bills

Some accounts will give you a percentage of cashback for certain direct debits and standing orders that are set up to pay bills - like council tax, utility bills, and mortgage payments.

Rewards for using your debit card

Other accounts pay money back when you use your current account debit card for spending. This is sometimes limited to selected shops, so it’s important to read the small print.

Perks for switching and paying in a minimum monthly amount

Many providers offer free cash when you switch, but after this you may need to pay in a minimum monthly amount or have a high enough balance to receive regular cashback.

Cashback accounts

Is cashback the best benefit to look for?

When you’re looking at current accounts, it’s best to weigh up your options. Check the terms and conditions to help you work out which one will suit your needs best.

If you regularly need an overdraft, an account that offers the best or cheapest overdraft facility might be better for you.

Some accounts offer alternative benefits to cashback, like travel insurance or breakdown cover, which might help to save you money than if you were to buy them separately.

And cashback accounts may not be the best option if you have a high average balance. You may be able to earn more by taking out an account that pays you interest instead.

How do cashback accounts work?

Some cashback current accounts require you to pay a monthly fee. This can range from around £2 to £5 a month, but others are free so it’s worth shopping around.

Sometimes, you’ll only need to pay the fee if you pay in less than the minimum amount each month.

The amount of cashback you get is calculated based on your spending.

This is logged through direct debits and standing orders set up from your account and also tracked through your debit card usage.

Cashback current accounts typically give you back a percentage of what you spend.

Some accounts only give you cashback if you spend at certain retailers or partner stores. And some have a maximum amount of cashback they’ll pay each month.

You may be able to choose whether you get the money as cashback, or in the form of other rewards like cinema tickets, loyalty points, and discounts.

What are the conditions for a cashback account?

Depending on the provider, to qualify for a cashback current account and potentially receive a cash incentive for switching you may need to:

  • Request to switch accounts through the provider’s website or banking app
  • Deposit a certain amount into the account each month
  • Have your salary paid into the account
  • Transfer at least two direct debits
  • Spend a minimum amount on your debit card each month
  • Log into your bank’s mobile app once a month

Do you get more money back on some bills than others?

Yes, some providers will give you a higher percentage of cashback for certain types of bills, if they’re paid by direct debit.

For example, you might get 1% cashback for council tax bills and mortgage payments, 2% for gas and electricity bills, and 3% cashback for water bills.

What are the pros and cons of cashback accounts?

  • Pros

    • You can earn money for normal day-to-day spending
    • You can make money on your monthly bills
    • Some accounts will also pay interest
  • Cons

    • The fee might not be worth the cashback and rewards
    • You can usually get a better rate of interest with a regular current account
    • They might not be suitable if you need an overdraft
    • Fees may be increased or cashback rates reduced over time

Do I need to pay tax on cashback for switching bank accounts?

Generally, you’re only likely to need to pay tax on your cashback if the payments continue for more than a year and you don’t pay a fee for your account.

If you pay a monthly fee, any cashback you get should be automatically taxed at 20% by your bank before you receive the payment.

If you don’t qualify for income tax, you may be able to claim the tax back from HMRC. Whereas if you’re a higher rate taxpayer, you may need to pay extra tax on your cashback.

You can record the payments on your tax-return or contact HMRC directly for advice.

Should I open a joint account for cashback?

This depends on your circumstances and how you use the account. Two people using the account can provide more opportunities to earn cash back and rewards.

However, if both of your salaries are being paid into a joint account, you might also want to consider one that pays interest on your balance.

Some cashback accounts will pay interest too, but you should compare this with the interest rates you can get with other types of joint bank accounts.

Plus, if you’re likely to need an overdraft facility, you can often get a better rate with a joint account that doesn’t pay cashback.

How much cashback can I get from a current account?

This depends on how much you’ll spend, the cashback percentages you’ll get for different types of spending, and the maximum monthly cashback limit.

You may be able to get more cashback if you have other products with the same provider - for example, if you have a mortgage as well as a current account with them.

Some cashback accounts will also pay interest, although this is typically at a lower rate than you’d get with a non-cashback current account.

You’ll need to factor in any fees and do your research to understand how much you might get back compared to other types of current accounts.

Are there alternatives to cashback current accounts?

Yes, there are other options you could consider that can help your money to go further:

Packaged current accounts

These can give you a range of extras and often come with at least one insurance product - for example, travel or mobile phone insurance. Like a cashback account, you’ll usually have to pay a monthly fee for these.

High-interest current accounts

A high-interest account can help your bank balance to earn more. Often these preferential rates only apply for the first 12 months, and you usually need to pay in a certain amount each month to get the higher interest rate.

Reward credit cards

Working in a similar way to a cashback account, a reward credit card can earn you points each time you spend. Depending on the card, you can exchange these for discounts, flights, holidays, or cash.

Accounts with low-cost overdrafts

If you’re likely to need an overdraft facility, you might be better off finding a current account with a low-cost overdraft option. Some current accounts offer a 0% interest overdraft for the first 12 months, although eligibility criteria will apply.

How to maximise cashback

When you open a cashback current account, make sure you’re aware of the requirements and conditions.

You’ll often need to pay in a minimum amount each month to qualify for the cashback (and to avoid paying the monthly fee).

And don’t forget to choose one that best suits your spending habits.

Registering your debit card with cashback sites like Quidco and TopCashback can also help to boost your earnings.

Finally, look out for fees and cashback rates changing. If this happens, it may be time to compare and switch to another provider.

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