Best bank accounts for cashback

An explanation of Barclays Blue Rewards.

All accounts, with the exception of Basic, Young Person’s, BarclayPlus, foreign currency accounts, Wealth, and Business, are eligible to have the Barclays Blue Rewards scheme added to them.

After signing up, the only way to earn Blue Rewards is to deposit at least £800 and pay the monthly fee of £4, which is currently being waived (taken from your nominated account on the second working day of each month).

The headline offer is cash in exchange for setting up monthly direct debits; for example, if you set up two direct debits at £3.50 each, you will earn £7 per month.

However, the greater the number of Barclays products you own, the greater the cashback you will receive:

A mortgage from Barclays costs $5 per month.
The cost of life insurance with critical illness cover is £5 per month, while the cost of standard life insurance is £1.50 per month.
A personal loan at a rate of £1 per month
3% off the cost of your new or renewed homeowner’s insurance policy.

Members can also open a “Barclays Blue Rewards Saver,” which pays 0.15% in any month in which they do not make a withdrawal (the rate drops to 0.01% if one or more withdrawals are made during the month).

Santander 123 in detail

The Santander 123 account and the Santander 123 Lite account both offer a cashback bonus of up to 3% on certain household bills, with a monthly maximum of £5 per cashback tier:

1% cashback on your mobile and home phone bills, broadband and paid-for TV package purchases, and the first £1,000 you pay toward a Santander residential mortgage, among other eligible purchases.
2% cashback on Santander home insurance and Santander life protection policies, as well as cashback on Santander gas and electricity bills.
3% cashback on water service charges

When you make purchases with your Santander debit card at a variety of major retailers, you may be eligible for an additional cashback bonus of up to 15 percent.

To be eligible for these benefits, you will need to make a monthly contribution of £500 and maintain at least two active direct debits. In addition, customers who bank with Lite are required to access their accounts via mobile banking or online banking at least once every three months.

The full 123 account has a monthly fee of £4, but it offers an interest rate of 0.3% on credit balances (compare high interest current accounts here).

Santander 123 Lite

NatWest and RBS Reward in detail

The NatWest and RBS Reward accounts used to give customers a 2% cashback bonus on household bills paid by direct debit; however, this benefit will no longer be available after February 2020.

You can now earn a total of £5 by paying out two or more direct debits, each of which is valued at a minimum of £2. In addition, you can earn an additional £1 by logging into the mobile banking app on a monthly basis. Both banks will give customers a cashback of 1% of their purchases made at select retailers.

To be eligible for the benefits, you must make a monthly deposit of $1,250 into either the NatWest or RBS Reward current account.

Once you have accumulated the equivalent of five pounds sterling in ‘Rewards,’ you will have the ability to spend them.

You now have the option to either bank it so that the money is transferred to your current account, trade it for gift cards and shopping codes to use at selected retailers, or donate it to a participating charity. If you choose to bank it, the money will be transferred to your current account.

Getting the most out of your checking account’s rewards.

If you want to be eligible for rewards for your current account, many providers require that you pay in a certain minimum amount each month or that you maintain a certain number of direct debits.

In order to receive the full benefit of working with a certain provider, it may be necessary for you to have other products, such as a mortgage, a personal loan, or insurance.

If you compare your rates to those of the rest of the market, you may find that it is more beneficial to hold these products with other providers even though you will receive additional cashback.

Be on the lookout for benefits being reduced or eliminated, or for an increase in the associated fees. If they are, you should take the time to reevaluate whether or not the account is still serving your needs, and you should think about switching providers if the benefits are no longer competitive.

Are rewards for using a current account taxable?

HM Revenue and Customs (HMRC) classifies certain rewards as taxable while others are exempt from taxation. It all boils down to how the HMRC classifies different forms of compensation for tax purposes. There are basically three different possibilities:

Annual payments that are taxable and have tax withheld at the source at the rate of the basic rate
Earnings from other sources are subject to taxation but are not subject to withholding during payment.
neither periodic payments nor other forms of income; therefore, they are exempt from taxation and are not subject to withholding.

Which? was informed by HMRC that the only circumstances under which it would consider current-account rewards to be annual payments are when they have been ongoing for more than a year and the customer is not required to pay a fee for maintaining the account.

Since cashback on household bills, such as that offered by Santander and NatWest, is essentially a discount on goods or services rather than income, there is no obligation to pay taxes on this type of compensation.

If you are a taxpayer who pays at the basic rate, you won’t have to pay any additional tax on annual payments.

If you pay tax at higher or additional rates, you are responsible for paying the additional amount on top of the tax that was withheld at the source if you receive rewards that have tax at the basic rate withheld from them.

You can reclaim any tax that was deducted from you even if you are not a taxpayer by filling out the R40 form or by including it on your self-assessment tax return if you file returns.

Bank of Halifax and the Co-operative.

Should I consider opening a cashback account with a friend?

There isn’t much to be gained by opening multiple cashback current accounts, in contrast to accounts that pay interest, because banks have a tendency to limit the benefits of doing so.

For instance, the Barclays Blue Rewards programme offers a cashback payment of £7 per month for the maintenance of two direct debits, in addition to varying levels of cashback for holding additional Barclays products; however, customers are only permitted to hold a single Rewards Wallet between them.

In a similar vein, you are only allowed to select one account to be eligible for Everyday Rewards with the Co-operative Bank.