How do cashback current accounts work?
There are two main kinds of current account that offer cash back on a regular basis: those that pay cash back on bills and payments made via direct debit, and those that pay customers for using their debit card in a certain way – for making contactless payments for example, or with certain retailers.
A couple of accounts also pay out a fixed reward every month we meet their terms and conditions, and now that some supermarkets and high street stores also provide banking, it's possible to get a "cash back" account that rewards us in loyalty points or gift cards instead.
Some banks also offer cash as a switching incentive, either in place of or on top of any other rewards for having the account; for some people a switching bonus will be a far greater reward than they may be able to earn through an account's regular cash back system.
How much can I earn from a rewards account?
How much we can earn in rewards or cash back depends on how much we're willing to pay for our current account. Those that offer cash back on bills paid by direct debit are the most generous, and they often don't cap earnings – but they do charge a monthly account fee, which holders will need to factor in when working out how much they could earn.
Free rewards current accounts, on the other hand, offer much lower returns. People with these accounts can expect to earn around £5 a month. A couple of these accounts combine the fixed monthly reward for sticking to the terms of the account with some form of cash back on spending, but the extra earnings are often quite limited themselves.
When is a rewards account a good deal?
The best cash back account for us depends on the kind of reward we're looking at and how we use our current account. Those that offer cash back on bills paid by direct debit have the potential to earn a tidy sum each month, but this needs to be offset against the monthly fee for having the account.
These are best suited for those of us who are always in credit, even if it's not by a huge amount, as the amount we can earn is based on our spending rather than our average balance - but the overdraft facilities are often quite expensive and will rapidly wipe out any earnings.
Rewards accounts that offer loyalty points or gift cards are clearly best suited to people who do the majority of their spending in their bank's partner stores. Some of these banks only reward spending in partner stores, while those who pay up wherever we shop tend to do so at a higher rate when we remain loyal – which translates into more money or vouchers to put towards future purchases in those locations.
When is a cash back account not such a good deal?
Those who are regularly overdrawn should focus on looking for a current account that can offer them the best overdraft for their needs instead, as it's highly unlikely that any cash back account will pay out enough in rewards to cover the cost of using their overdraft facilities. Compare accounts with overdrafts here.
The most rewarding cash back accounts pay out on bills paid by direct debits, so people who have low regular bills or who pay them by some other means won't get the full benefit. However, they may still find that an account that pays out on debit card spending or that offers a set reward each month could still be a good option.
Cash back accounts also aren't the best deal available for those who always have a high average balance, as it may be possible to earn more with an account that pays interest instead – although there are some accounts that offer both interest on balances and rewards on spending.
Go back up to the bank account deals