Reward & Cashback current accounts

Compare reward and cashback current accounts

Could you save money by switching your bank account? Many banks and building societies offer generous reward current accounts if you switch

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Current accounts. Trust us to explain them simply


Reward and Cashback accounts

What is a reward current account?

Reward current accounts offer you an incentive to switch your back account to them, including cashback, regular loyalty payments (perhaps £5 a month) and discounts.

In return, you usually have to meet certain conditions, such as paying in a minimum amount into the account each month. You may lose your benefits if you fail to meet the terms.

What is a cashback current account?

A cashback account is an account which gives you a cash bonus or reward when you switch to it. The cash is offered as an incentive by banks and building societies to persuade people to move their money across from another provider.

The reward sometimes takes a different form. For example, if the account is a packaged account with a monthly fee, the fees may be waived for a set period of time. Most of the accounts that offer cash incentives or rewards are current accounts.

What types of current accounts do people hold?

According to a survey of 1,978 internet users by Mintel research in July 2019

How do cashback current accounts work?

Banks that offer a cashback switching incentive should automatically credit your account with the agreed amount – say £50 – within three months of the transfer.

If your new account offers cashback on spending, the amount you earn will also be automatically credited to you.

Regular cashback is generally limited to certain types of spending, such as bill payments and purchases at a limited range of retailers.

Is cashback the best benefit to look for?

Cashback is the most flexible perk offered by current accounts because it can be spent on anything you like.

This is why the cashback amounts tend to be less substantial than the other rewards on offer: an £100 voucher for a retailer you visit often may be worth more to you than £50 cash, but it’s useless if you never shop there.

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.

How many current accounts do people hold?

According to a survey of 2,000 internet users by Mintel research in July 2019

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

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.

Banks should deduct 20% tax before you receive your annual payments – 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 taxpayers may need to declare it.

Other types of rewards, such as cashback switching incentives, are classed as discounts and are not subject to tax.

Should I open a joint account for cashback?

If you are opening a cashback current account to take advantage of a switching incentive, opening two accounts will earn you and your partner more than opening one joint account.

If, however, you are opening a joint account to pay household bills, a cashback account offering cashback on bill payments could be a sensible choice.

How much cashback can I get from a current account?

Cashback current account terms vary, but generally speaking the more you spend – with approved partners such as chain stores and energy companies – the more cashback you earn.

That said, most banks cap the total amount you can earn in a year, as well as restricting the spending on which you can earn cashback.

You may, for example, be able to earn up to 15% cashback when you make a purchase with a particular retailer, up to a maximum of £150 per year.

Reward current accounts: The pros

  • You can earn a cash lump sum or another type of reward simply for switching your account
  • Cashback is essentially money for nothing and is a good way to make your money work harder in the current low-interest environment

Reward current accounts: The cons

  • Some cashback current accounts have high overdraft charges
  • Many offer little or no interest on your in-credit balance
  • You may be required to pay in a minimum amount each month to qualify (or to pay a fee)
  • Some banks also ask you to pay in your salary each month

What are the alternatives to reward current accounts?

Alternatives to reward current accounts include:

Comparing reward current accounts

Comparing reward current accounts on MoneySuperMarket can help you find the right bank account for your needs.

Check the switching incentive, the on-going rewards, the monthly fee, and the terms and conditions you must meet to qualify – then click through to start claiming your rewards.