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 are called cashback current accounts, and switchers can earn £50 or more.
Reward current accounts allow you to earn cashback and other perks on an on-going basis.
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 with current accounts 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.
Cashback accounts are also unsuitable if, for example, you often go 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 monthly current account rewards.
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.
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
You can also compare the ongoing rewards which are offered, 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.