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Reward and cashback current accounts

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Some banks offer you cashback if you switch to their current accounts. It’s now easier than ever to make the switch with the Current Account Switch Guarantee

By Esther Shaw

Published: 09 March 2020

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What is a cashback current account?

You can earn a financial incentive when you switch your main current account from your existing bank to a new provider.

Accounts that offer this perk sometimes pay switchers £50 or £100 or even more, for example, as a one-off reward for moving. 

In contrast, reward current accounts allow you to earn cashback and other perks on an on-going basis when you use your account in a similar way to a cashback credit card.

How do cashback current accounts work?

To earn cashback by switching current accounts, you must do the following:

  • Apply for the account within the offer period
  • Be claiming the cashback for the first time
  • Complete the switch by a certain date

You may also have to:

  • Pay in a certain amount – either as a lump sum or in multiple smaller payments
  • Switch at least two direct debits to the new account

The bank will then automatically credit your account with the cashback incentive within a set number of days.

How do you open a cashback account?

Switching current accounts is very easy in the UK, because the Current Account Switch Guarantee simplifies the process. It promises:

  • A free current account switch service
  • A switch date of your choice
  • The smooth transfer of your regular incoming and outgoing payments, plus any money in your account
  • Automatic redirection for any payments made to your old account (the payee will also receive your new bank details)
  • Compensation for any fees and interest charged or lost during the switch from your new bank

Remember that you will need to meet certain criteria to earn the cashback. For instance, you may have to pay in a minimum amount each month. Fees may apply if you fail to do so.

Is cashback the best current account benefit?

Cashback is the most flexible perk offered when you switch your account because it can be spent on anything you like.

However, if the account offers a £100 voucher for a retailer you shop at often, this may be worth more to you than £50 in cash. Shop around to see what perks are on offer to switchers.

In contrast, reward current accounts that pay cashback on your everyday spending - such as bills and supermarket shopping - out of your account can have a longer lasting benefit than a one-off cash perk for switching.

Bear in mind though, that some rewards current accounts can have high overdraft rates so they may not be the best choice if you often use an overdrawn.

In this case, an account with a 0% overdraft buffer or a low overdraft rate will offer better value for money.

Is cashback on current accounts taxable?

Any cashback you earn when you switch current accounts is considered a discount rather than interest or income – so it isn’t taxable.

However, you may have to pay tax on the regular cashback you earn on a rewards current account, for example.

Are current account rewards taxable?

Some types of current account rewards are taxable. Monthly cash payments, for example, can be classed as ‘annual payments’ or, if you pay a fee to receive them, ‘miscellaneous income’.

On annual payments, banks should deduct 20% tax before you receive them – although you will need to pay more tax on them if you are a higher-rate taxpayer.

Miscellaneous income, meanwhile, is paid before tax, meaning every taxpayer needs to declare it.

Other types of rewards, such as cashback on bills, are classed as ‘discounts’, which are not subject to tax.

Comparing cashback current accounts

Comparing cashback current accounts can help you find the right bank account for your needs.

Switching incentives: MoneySuperMarket lists and sorts current accounts that offer a switching incentive by:

  • Size of switch incentive
  • Overdraft rate
  • In-credit interest rate
  • Customer service score
  • Digital bank rating
  • Brand

Rewards current accounts: You can also compare those current accounts that offer ongoing cashback on your spending and other rewards, and check the terms and conditions you need to meet to qualify for the offer. Then just click through to open and account and earn money for free.

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