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Best bank accounts

Best bank accounts for cashback

By Chiara Cavaglieri

Article 2 of 6

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Best bank accounts for cashback

If you want more from your bank, take a look at our table showing the best current accounts for cashback and other rewards.

Top current accounts for cash rewards

Many banks and building societies are offering cashback on monthly bills and loyalty rewards as an incentive to open or retain an account. We show the best offers in this table.

If you’re looking for a bank account with extra benefits such as travel insurance or car breakdown cover, see our online tables to compare the best – and worst – packaged bank accounts.

* Based on average monthly household bills of £32 (water), £89 (energy), £44 (mobile phone/data), £35 (landline/broadband), £19 (TV package), and £124 (council tax)

Table notes:
a £7 reward each month, no minimum monthly funding required
b £4 reward each month if you pay in £800 and pay out 4 direct debits (plus up to £1.50 for using debit card to pay)
c £7 reward each month, if you pay in £1,200 and pay out 3 direct debits (Northern Ireland branches only)
d £3 reward each month if you pay in £750, stay in credit and pay out 2 direct debits
e 3% fixed cashback on household bills paid by direct debit, no minimum monthly funding required
f 1-3% tiered cashback paid on household bills paid by direct debit, must pay in £500, pay out 2 direct debits and log in to online or mobile banking at least once every three months

Customer score: 
General public score based on customer satisfaction and likelihood of recommending company to friend/family member. Customer scores are based at brand level.

Customer scores are based on a survey of an online panel of respondents from the general public, who were invited to take part in the bank account customer-satisfaction survey during September 2016. The final sample size was 4,918.

Is it worth paying a fee for your current account?

We surveyed 8,815 Which? members in July 2016 and found that 30% currently pay a fee for their current account.

The majority of fee-payers believe they get a good deal, particularly at Nationwide where 85% rated their account as ‘good’ or ‘excellent’ value for money. However, not everyone is quite so enthusiastic – 40% of fee-payers at Barclays rated their account as ‘fair’ and 24% ‘poor’ or ‘very poor’ value.

We asked members to tell us the name of their bank and whether they pay a fee for their current account. This means that, for the first time ever, we have star ratings for each bank that differ depending on whether the account is paid-for or free.

Star ratings were only produced where we had at least 30 responses.

Star ratings for bank accounts with fees
Provider Customer service Perks/benefits Branch service Transparency of charges/penalties Telephone banking Internet banking
First Direct -
Nationwide
Santander
Co-operative Bank
Halifax -
NatWest
Lloyds Bank
TSB Bank -
Royal Bank of Scotland
Barclays Bank
HSBC - - - -
Star ratings for free bank accounts
Provider Customer service Perks and benefits Branch service Transparency of charges/penalties Telephone banking Internet banking
First Direct -
Nationwide
Smile
Co-operative Bank
TSB Bank
Halifax
Lloyds Bank
Yorkshire Bank -
Santander
Bank of Scotland
Clydesdale Bank - -
HSBC
Royal Bank of Scotland
Barclays Bank
NatWest

 

Maximising current account rewards

Many providers ask you pay in a minimum amount each month or maintain a certain number of direct debits to be eligible for current account rewards.

In some cases, you may need to hold other products with that provider, such as a mortgage, personal loan, or insurance, to benefit fully. Compare rates to the rest of the market as you may be better off holding these products with other providers, even with the extra cashback.

Watch out for fees being increased, or benefits being chopped and changed. If they are, take the time to reassess whether the account is still working for you and consider switching if the benefits no longer stack up.

Current accounts and tax

Under the new personal savings allowance (PSA), basic-rate taxpayers can earn up to £1,000 in savings income tax-free, while higher-rate taxpayers get a £500 allowance.

The PSA applies to all types of savings income, including interest paid on bank and building society current accounts. Since 6 April 2016, banks and building societies have stopped deducting income tax from interest paid on both traditional savings accounts and current account.

It was designed to simplify the system, but it’s managed to create a fair amount of confusion – particularly when it comes to current-account rewards.

Current-account rewards are paid as an incentive to open or retain an account – not as a return on the money you deposit into the account. You aren’t earning interest, or any other form of savings income, so this money is not covered by the PSA.  

Q. Are current account rewards taxable?

Some rewards are considered taxable by HM Revenue & Customs (HMRC) and some aren’t. It all comes down to how the taxman categorises rewards for tax purposes. Broadly, there are three possibilities:

  • Annual payments: taxable and paid with basic-rate tax deducted at source
  • Miscellaneous income: taxable but paid without tax deducted
  • Neither annual payments nor miscellaneous income: not taxable and paid without tax deducted

HMRC explained to Which? that it would only expect current-account rewards to be annual payments if they continue for more than a year and the customer does not pay a fee for holding the account.

Cashback on household bills, offered by the likes of Santander and NatWest, are essentially a discount on goods or services, not income – so there is no tax to pay.

Q. Do I owe tax?

Both Halifax and The Co-operative Bank offer rewards that fall into the ‘annual payments’ category, which means they deduct basic-rate tax of 20% before paying rewards.

The gross monthly reward for the Halifax Reward account is £6.25, but you receive a net reward of £5. The gross monthly reward for the Co-op Everyday Rewards account is £5, but you receive a net reward of £4.

You don’t owe any extra tax if you are a basic-rate taxpayer.

Previously, Barclays Blue Rewards customers earning the £7-per-month Loyalty Reward were told to declare this to HMRC, via self-assessment, or by getting a new tax code. This reward was deemed to be a ‘miscellaneous payment’, because there is a £3 monthly fee.

As of December 2016, Barclays has reclassified this perk as cashback – to be precise, you earn £3.50 cashback monthly for your first two direct debit payments – to ensure that it is no longer subject to tax. 

That means any Loyalty Reward received up to and including November 2016 is subject to UK income tax and may need to be declared but cash received after December 2016, is tax-free.

All other Blue Rewards current account benefits have never been subject to income tax as these are also cashback deals for holding specific products (mortgage, insurance, loans).

Q. What if I’m a higher-rate taxpayer?

If you pay tax at higher or additional rates you should pay the additional amount over and above the tax deducted at source if you receive rewards with basic-rate tax deducted.

Q. What if I’m not a taxpayer?

If you are a non-taxpayer, you can reclaim any tax deducted by using the R40 form or on your self-assessment tax return if you complete returns.

How we choose our Best Rate bank accounts

Which? Best Rate current accounts offer the best rates on the market for the scenarios we've used.  They also have to meet the following conditions:

  • The accounts must be available nationally
  • The account provider must be fully covered by the Financial Services Compensation Scheme

We analyse the whole market and calculate the cost of the account so you can see how much you're likely to pay or how much interest you'll earn if you choose that account.

Which? Recommended Providers 

Which? Recommended Providers are companies that are both rated highly and have products that meet our high standards. Which? closely monitors the products and practices of all Recommended Providers and reserves the right to exclude any company that doesn't treat its customers fairly. Follow the link for a full list of WRPs.

Which? Warning Poor Satisfaction

We also understand that for many people, finding products with the best rate is a priority. But where a product from a provider with a poor customer score appears in our Best Rate tables, we'll highlight this with the warning logo. Our customer satisfaction surveys measure overall satisfaction with the provider in relation to bank accounts, not individual bank accounts offered by the brand. The customer score should therefore not be associated specifically with any individual bank accounts. Only customer scores that are significantly below average and fall into our bottom statistical tier receive our warning. Our customer scores are updated every six months.

By naming and shaming providers which customers judge to offer poor satisfaction in these tables, we hope that companies improve their standards.

  • Last updated: March 2017
  • Updated by: Chiara Cavaglieri

Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.