Best Bank Accounts £125 intro bonus or up to 3% cashback on bills

Find out your right account type

Banks are constantly trying to confuse us with new charges, incentives and ‘terms & conditions’. In order to foil their subterfuge and make sure you get the bank account that's cheapest, or most rewarding, for you, it’s vital to work out what kind of customer you are.

Are you constantly in credit, or always overdrawn? Or do you move between one and the other through the course of a month? Take a look at your last few statements to get the true picture of your banking. This’ll tell you which type of account to plump for...

Switching bank account is easy & profitable

A few years ago, banks gained the ability to automatically transfer standing orders and direct debits for you, making switching much easier. It means your main task is to notify people who pay into your account; especially your employer. Yet even so, always keep the old account open for a good few months after the switch just in case something’s been missed.

Switching will make you £100s

If you're thinking that switching account won't make much difference, you're wrong. While banking is 'free', this only applies if you're in credit.

Yet in reality, most banks pay you a pitiful 0.1% interest and then loan your money out to others in the form of overdrafts at 20%. Thus, even if you like the customer service, ask yourself, "Is it so good I'm willing to effectively pay £100s a year in lost benefit?”.

Important things you should know

The choice isn't just between good in-credit and overdraft rates. You must pass a credit score, plus most accounts require you to deposit a certain amount every month. This needn't stay in the account, nor must you be in-credit. This effectively sets a minimum earnings threshold...

eg, £1,000/month ‘pay-in’ = £14,000 pre-tax salary

As then your take-home pay fulfills the pay-in rules. From here on, we often convert min pay-ins into min earnings. With work, you can cheat this rule; withdraw some money each month and pay it back in. If you earn £900 a month, pay your salary in, withdraw £100 and re-deposit it.

It's also worth noting that sometimes you can get extra cashback signing up via special websites. See top cashback sites for a full explanation and how to find which sites pay most.

Best buys: Top if you’re always in credit

If you never enter your overdraft, focus on earning the most interest on your positive balance. Yet most accounts only pay interest on a limited amount, so sweep the rest of this cash into the Top Savings Accounts to maximise your interest.

There's no best-buy for everyone. The right account for you depends on your salary, average balance and what account you've got now.

The big four deals are listed below in salary order, yet don't assume higher minimum salary automatically means it's best for you. Scroll though all the options to pick the right one for your circumstances.

Min salary £22,800 (pay in £1,500/mth)

Top for customer service plus £125 bonus First Direct

• In-credit interest: NONE.
• Min monthly pay-in: £1,500 ( explanation )
• Arranged overdraft cost: 0% up to £250, 15.9% above that.
• Unarranged overdraft fees: £25 paid item fee or bounced payment fee of £0, £10 or £25.

New First Direct* 1st account customers get a £125 bonus by transferring a salary of at least £1,500 a month within the first three months. It pays no in-credit interest, but in most feedback on customer service First Direct rates very highly.

1st

Customer services poll (in credit and overdrawn)
Great		90%
OK		8%
Poor		2%
Date: Feb 2012 | Voters: 825

First Direct also has a huge 8% savings offer for its 1st Account customers if you can save something every month. Read the Regular Savers guide for full details.

Customer service feedback

In our February 2012 poll of the top nine banks, First Direct again came top for customer service, with a huge 90% of customers saying they received great service.

Full info on how to best work it & the details…

You'll be charged £10/mth unless....

The easiest way is to pay in £1,500 a month. However, if you have savings (excluding the Regular Saver), insurance, a mortgage or credit card with First Direct, the fee will be waived.

So if your salary reduces, and you can no longer pay in £1,500 per month, consider opening a First Direct savings account that requires a low minimum deposit, such as their Everyday e-Saver Account (min £1).

How to get the perks

You must transfer a salary of at least £1,500 a month and switch at least two direct debits and standing orders. If you do this within three months the £100 will be added to your account within 28 days of the criteria being met.

It pays no in-credit interest, but in most feedback on customer service First Direct rates very highly. Due to this, it also offers a second £100 if you switch away within a year, if you've maintained the monthly £1,500 deposits.

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Min salary £14,000 (pay in £1,000/mth)

Long-term bonus. Free £5 per monthHalifax: Provided you never go overdrawn

• In-credit interest: £5/month (AFTER tax).
• Arranged overdraft cost: Up to £2,500: £1/day. Over £2,500: £2/day.
• Unarranged overdraft fees: £5/day
• Min monthly pay-in: £1,000 (explanation)

The Halifax* Reward account pays a flat £5 each month you deposit £1,000. Put in your salary of £14,000+ and you’ll be fine. To get the monthly payment you must use its switching service.

Yet don’t go for this account if you sometimes go overdrawn (even occasionally) as the charges can be huge (see the Halifax overdraft charges story).

8th

Customer services poll (In credit)
Great		36%
OK		46%
Poor		18%
Date: Feb 2012 | Voters: 611

Customer service feedback

In our February 2012 poll of the top nine banks, Halifax showed a decline from previous votes, with 36% of in-credit customers rating it great (previously 42%). 18% rated it poor, worse than the August 2011 result of 15%.

Full info on how to best work it & the details…

How long will it pay out the £5s for?

This is only a good deal so long as Halifax keeps paying £5 each month. Halifax has confirmed to us this is a permanent feature which has been running for over two years and it has no plans to change. However, be aware it has the right to stop payments at anytime.

We've heard reports of some MoneySavers being offered a sign-up bonus in branches, but this is unconfirmed by Halifax and seems only to be in a small number of locations.

What about tax on the money?

The monthly £5 payment is ‘interest after basic rate tax’ so non- or higher-rate taxpayers should claim extra or pay more via tax returns (see Interest Rates Guide).

BOOST this by £5/mth

If you get this account you can also apply in branches or by phone for a Halifax Rewards Clarity credit card, which pays £5 every month you spend over £300 on it, and is also a top Travel Money card. Set up a direct debit to repay in full, to avoid the 12.9% representative APR. See how it compares to the Top Cashback Cards.

What if my salary drops?

If you miss a month's £1,000 pay-in, all that happens is you don’t earn the fiver, which can happen if you have a movable payday (see Halifax date change issues). You won't face any other penalties.

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Min salary £9,600 (pay in £750/mth)

Get annual European travel insuranceNationwide FlexAccount

• Bank account.
• In-credit interest: NONE
• Min monthly pay-in: £750 ( explanation )
• Arranged overdraft cost: 18.9%.
• Unarranged overdraft fees: £15 paid / unpaid item fees, £20 usage fee (max £95/month).
• Travel Insurance.
• Cancellation: £5,000 (£50 excess)
• Personal baggage: £1,500 (£50 excess)
• Medical: £10m (£50 excess)
• Full info: Key Facts PDF Policy Wording PDF

New and existing holders of Nationwide's* FlexAccount current account get free European travel insurance for customers up to age 75 (must be max age 73 at account opening). To get the cover, you must switch direct debits and standing orders from another account to it, and pay in at least £750 each month.

The pay-in is equivalent to depositing a salary or pension of £9,600 (or £9,000 for most 65-74 year olds). If your income is less than that, it's possible to withdraw money and deposit it again to meet the £750 minimum.

If you’re accepted, you'll be eligible for the Nationwide Select credit card. It gives 20 months 0% on balance transfers, 0.5% cashback, cheap overseas spending and 0% on purchases for 12 months. See 0% Credit Cards for more details.

3rd

Customer services poll (in credit)
Great		57%
OK		34%
Poor		8%
Date: Feb 2012 | Voters: 484

Customer service feedback

In our February 2012 poll of the top nine banks, Nationwide came third top for service, with 57% of in-credit customers saying they received great service and 34% of customers rating it OK.

Full info on how to best work it & the details…

How good is the insurance?

It's got good cover limits and a pretty low £50 excess, and is rated 'five star' by Defaqto. You can pay to upgrade to cover worldwide travel, or winter sports holidays.

If you open this as a joint account, both account holders are covered by the insurance - provided they are under 75 - and the policy will automatically renew each year, until 31 December in the year of your 75th birthday. For more details on how the insurance compares see the Travel Insurance guide.

What if my salary drops?

If your salary reduces and you can't pay in £750 per month you'll won't be eligible for the free travel insurance. You should be notified if you're no longer covered.

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Min salary £6,000 (pay in £500/mth)

Up to 3% cashback on bills. Though £2/mth feeSantander: Provided you earn over £6,000

• In-credit interest: 1% AER for balances over £1k, 2% over £2k, 3% for between £k-£20k
• Cashback: 1% on water and council tax bills, 2% on gas and electricity, 3% on phone, internet and TV
• Arranged overdraft cost: £1/day, capped at 20 days/month
• Unarranged overdraft fees: £5/day
• Min monthly pay-in: £500 ( explanation)

The new Santander* 123 Current Account charges a £2 per month fee, however it pays cashback of up to 3% on bills paid by direct debit. You can also earn interest on your balance, up to 3% for those with a £3,000 - £20,000 balance.

• Cashback rates: 1% cashback on water and council tax bills, 2% on gas and electricity, 3% on mobile, home phone, broadband and paid-for TV packages.
• In-credit interest: 1% on balances over £1,000, 2% over £2,000 and 3% on between £3,000 - £20,000. The top tier almost matches the Best Savings Accounts.

We crunched the numbers, and a 'typical' billpayer could be £49 in profit, before interest (see Santander 123 Analysis news). Existing current account holders are also able to switch to this account if they wish.

Customer services poll (in credit and overdrawn)
Great		29%
OK		40%
Poor		31%
Date: Feb 2012 | Voters: 945

Customer service feedback

In our February 2012 poll of the top nine banks, Santander came bottom with 31% of customers who voted saying they got poor service. While this is far from great, it's once again improved since our last poll six months ago.

This feedback is based on customers' previous experiences with Santander. As the 123 account is a new product, we don't yet know whether it will change the results.

Full info on how to best work it & the details…

How to get the cashback and interest

To get these perks use its 'Account Transfer Service' to move at least two direct debits and standing orders, and pay in at least £500/month (£6,000 salary). If you can't pay the monthly deposit you just won't earn the cashback in that month.

You also get a 0% overdraft for 4 months, this is to help cover any direct debits that may come out of your account before the switch is complete. Don't get too used to it, as charges will rocket after.

How good is it?

We crunched the numbers on how this stacks up for low, average and high bill payers. After the fee we worked out low users would be up by £17 a year, average users £49 and high bill payers could be £106 in profit. For more stats see the MSE News Story.

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Specialised Alternatives

There are a number of other options that may suit.

• Can't pay in a set amount each month?
  
  The Halifax* Reward account doesn't require regular monthly deposits, but unless you sometimes pay at least £1,000 in, you'll never earn any interest.
  
  This account requires you to have a good credit score, so is suitable for those who have wealth but not those struggling. If that's the case do also read the Basic Bank Accounts section or the Credit Unions article.
• Have a high balance?
  
  If your current account balance is consistently high, then apart from Santander's 123 account paying up to 3% in the Top Accounts section you can't beat the current easy access savings accounts. So you're better off sweeping extra cash into a top paying savings account which pays decent interest on the whole balance.
  
  

If you have a large balance, don't forget about savings safety

As we're discussing high balances, it's worth knowing you get the same protection as in savings if a bank went bust - the first £85,000 in each of these is guaranteed by the UK government. Read Savings Safety guide for full details.

You shouldn't be keeping anywhere near that in one of these though, as the rates are rubbish! If you have a high balance - perhaps due to a house sale - try to sweep the money into a Top Savings Account as soon as you can.

Best buys: Top if you go overdrawn

Overdrafts are debts, and often they’re much more expensive than credit cards. So avoiding being overdrawn is always a good policy. The costs below strictly refer to going overdrawn within your limit, if you go beyond that you’ll pay through the nose (see avoid bank charges section).

If you are overdrawn, don't just tackle the symptoms, also try using the free budget planner, give yourself a money makeover to tackle its causes and check the tips to avoid charges in the Bank Charges Compared tool.

Small 0% overdraft if you earn over £22,800 First Direct: £125 intro bonus, only interest free to £250

• In-credit interest: NONE.
• Arranged overdraft cost: 0% up to £250, 15.9% above that.
• Unarranged overdraft fees: £25 paid item fee or unpaid fee of £0, £10 or £25.
• Min monthly pay-in: £1,500 ( explanation)

First Direct's* 1st Account offers 0% interest on the first £250, but this shoots up to 15.9% EAR above that. New customers also get a £125 intro bonus when they switch to it.

1st

Customer services poll (in credit and overdrawn)
Great		90%
OK		8%
Poor		2%
Date: Feb 2012 | Voters: 825

Customer services feedback

In our February 2012 poll of the top nine banks, First Direct came top for customer services. A huge 90% of customers said they received great customer service.

Full info on how to best work it & the details…

How to get the perks

You must transfer a salary of at least £1,500 a month and switch at least two direct debits and standing orders. If you do this within three months the £100 will be added to your account within 28 days of the criteria being met.

It pays no in-credit interest, but in most feedback on customer service First Direct rates very highly. Due to this, it also offers a second £100 if you switch away within a year, if you've maintained the monthly £1,500 deposits.

What if my salary drops?

If your salary reduces and you can no longer pay in £1,500 per month you'll be whacked with a £10 monthly fee. So choose another account if you think this may happen.

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How to cut overdraft costs

One option is to get the 0% overdraft above. However for many people, the cheapest option is actually to shift the debt to a cheap credit card. Usually the easiest way to do this is by using a simple technique.

• Step 1. Apply for a cheap 0% card for spending on.
  
  Apply for a 0% card for spending on so that everything you spend on that card is then at a cheap rate.
• Step 2. Use that credit card instead of a debit card/taking cash out.
  
  Now use the credit card for your normal day-to-day spending, making only the minimum monthly repayments on it. This means your monthly income pays off your overdraft as there's no money being taken out of that account. Instead the debt builds up on the credit card, but at 0%.
• Step 3. Stop using the card once your bank account is in credit.
  
  Doing this is technically the best solution for those with self-discipline, you can’t allow yourself to spend more on this card or build up more debt. You should stop using the card once your account is in credit. The aim is to try to pay the card off by the end of the 0% period, or at the worst, shift it to a cheap balance transfer deal.

A tip to save you cash if you mix ’n’ match.

If you jump regularly between being in credit and using your overdraft, it's sensible to keep as much money in your account for as long as possible. Therefore, if you’ve the self-discipline, set all your household bills, direct debits and other standing orders to leave your account towards the end of your working month, artificially boosting your balance.

If you fear this may lead to money needed for bills being spent before it’s needed, don’t take the risk. Also, take a read of my Budgeting article to help manage your cash flow.