Santander 123 account vs Halifax Reward account: the most rewarding current account

These two current accounts both offer cashback deals. But which will pay you more, the Santander 123 account of the Halifax Reward account?

first direct is the last of the banks to continue to offer a quick £100 to switch to its current account. Brilliantly, it'll also pay you another £100 to leave 12 months later, if you tell them you're not happy with the service.

One-off bribes aside, there are not many accounts that reward you with reasonable amounts of cash on a consistent, monthly basis. I'm going to compare the two highest-paying accounts, which are from Halifax and Santander.

Halifax beats Santander on reputation, by dint of the fact Santander is currently the most castigated bank when it comes to service. However, this has been steadily improving as the bank gets to grips with integrating the banks it bought, Alliance and Leicester and Abbey, and by taking steps such as bringing customer services operations back to the UK.

Cashback and complexity

The Santander 123 Account is a new one that is clearly designed to encourage people not just to move to it, but to stick with it for longer.

I'm going to just tell how much you might get in cash from this account and then I'll tell you how I estimated that, because it is not at all straightforward. .

Based on what I'm guessing is roughly the average account holder, I expect that you might get around £36 per year from this account, with those maintaining substantial bank balances at all times getting closer to £100.

Those estimates are based on some assumptions.

Provided you pay in £500 per month and pay the £2 monthly fee, and provided you pay at least two direct debits from the account, you'll get paid 1% interest before tax while your balance is £1,000 or more, 2% interest on the whole balance when your balance is £2,000 or more, and 3% on the whole balance when it is between £3,000 and £20,000.

To be clear, if the balance is £4,000, you'll get paid 3% on every penny.

To make the account better – although even more complicated – you also receive cashback on household bills spend, as follows:

I estimated that you'd get £36 using the following assumptions:

• You pay £100 a month in council tax
• £30 per month for water
• £80 per month for gas and electricity
• £60 per month for your mobile, TV, home phone and broadband.
• You get paid around £2,000 salary per month, go down to near zero after 30 days, and average about £1,000 in your current account. You'll probably get around £6 in interest due to taxes and the canny way interest is calculated (more like £4-£5 if you're a higher-rate payer).

If your balance stays over £2,000 for the vast majority of the month, you'll get a total in cashback and interest of £62+ (£55+ for higher-rate payers) after the £24 annual fee is deducted.

If your balance stays over £3,000 for the vast majority of the month, you'll get a total in cashback and interest of £102+ (£84+) after deducting the fee.

Simplicity is a winner

The Halifax Reward Account beats Santander in terms of the simplicity of its monthly cash reward and I think most people will also get more cash out of it.

Pay in £1,000 and that month you'll get £5. Basic-rate taxpayers and non-taxpayers get the full £5, but higher-rate payers must pay £1.25 through their tax returns. That's £60 per year then for most people in a very transparent deal.

In short, the Halifax account is not only more simple but it will probably reward you more unless your household bills are extremely high or you want to maintain a large current account balance at all times, meaning having a minimum of £2,000 in the account (or nearly £3,000 for higher-rate payers).

However, if you use the Halifax account and transfer the excess £2,000+ to a savings account or cash ISA, you will still do even better than maintaining a high balance at Santander.

Switching to these accounts

If you're switching to these accounts and want to move over your direct debits, Halifax gives you a three month fee-free overdraft and Santander a four-month one, to help ensure there are no problems when you switch over. Make sure you keep enough cash in your old account until the switch is complete.

Unusually for a top offer like Halifax's, you do not have to transfer your direct debits, standing orders or salary payments, which means you could open both the Halifax and Santander accounts to benefit from the £5 payout, the household-bill cashback, and the monthly interest, netting around £100 or more every year.

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