There is a pack of tech-smart new banks snapping at the heels of established high street rivals – and it seems some are racing ahead.
Challenger banks already dominate This is Money’s independent best-buy savings tables, paying far more than the miserly rates offered by the big banks.
Now there are a few which have brought out current accounts too, including most recently, Monzo.
It started out as a pre-paid card allowing users to view transactions instantly and easily keep tabs on spending. It was seemingly so popular among younger banking customers that ‘golden tickets’ were given away to be able to jump the weeks-long waiting list to get hold of one.
Here’s the This is Money verdict on the new current account and a comparison of how it stacks up against its competition.
Monzo: The challenger is scrapping its popular prepaid card in April, customers can currently upgrade to its current account
These app-only banks are like Marmite, most either love them or can’t think of anything worse.
The major benefit is these apps offer an instant insight on your balance.
Even if extra budgeting features and balance updates are not your thing, there are some other perks including in-credit interest and low overdraft fees as well as some sensible tools such as the ability to freeze and unfreeze your card instantly.
The draw for many is the free overseas spending perk many of these apps offer, a great way to draw people in when these banks are in their infancy. But these initial offers may not be around for long, as shown by Monzo’s recent cap on fee-free withdrawals abroad.
Remember if you do lose your mobile you will want to contact the bank’s customer services as soon as possible so they can disable the app, although because they require a pin or thumbprint to open it’s less likely you’ll lose money.
The challengers waiting in the wings
Atom Bank was one of the first challengers to gain a licence, appearing on the scene back in 2015 with plans for 5 million current accounts by 2020.
The bank already regularly features in the best buy savings tables and offers a range of mortgages.
The roll-out of its current accounts is expected either this year or next after delays reported last year.
N26 has a German banking licence which will allow it to operate current accounts in the UK.
Its website says these are coming soon to the UK and people can register their interest for early access by email.
Monzo launched its prepaid cards in March 2016, and received its full banking license in April last year.
The bank has started now sending out debit cards to those who have opted in for an upgrade to its new current account; the existing prepaid card scheme is set to close on 4 April.
As many as 360,069 customers had already signed up for the current account at time of writing, as many of the new account features are the same as with the prepaid card.
The app automatically categorises your spending and lets you see reports on your balance. You can also set up spending targets for each category and receive notifications when you get close to that limit.
You can instantly pay your Monzo contacts using your pin without having to enter any bank account details and freeze your card instantly if it’s lost.
Last November the bank launched its pots feature which lets you divert funds into separate pots to help you reach savings goals.
It doesn’t offer any interest on the amounts but Monzo says in future it aims to use its marketplace to offer the option to divert these pots to online investment.
You pay nothing for spending abroad but the bank caps free withdrawals on the card at £200 per month. After that you pay 3 per cent.
Monzo has opted for flat rate fees instead of interest. There is a £20 buffer (a little more generous than the £10 many high street banks offer) and after that you pay 50p per day it gives you until midnight before the bank begins applying charges.
If a payment is about to take you over your limit, the app will send you an alert.
If you haven’t signed up for an overdraft it will reject any payments that would dip you in to one, or any that would go beyond your limit. If you don’t want an overdraft you simply set the limit to £0.
Managing your account
The app also allows you to add cash via a bank transfer, top up using a debit card and using Apple or Android pay.
You can contact its customer services via its chat function 24 hours a day, by email or by phone.
To deposit a cheque you send it by post but it currently has no options to deposit cash.
When you send a payment it requires to use a four digit pin. You can also set up Touch ID to login and authorise payments in the app.
You can set up location-based security which uses the location of your mobile to help spot suspicious transactions on your card.
Spending breakdown: Starling shows you how much you have spent via a handy pie chart
Starling received its banking licence in July 2016, having announced plans as far back as November 2014. Its current account launched in May 2017.
Similarly to Monzo, the Starling account comes with impressive budgeting features.
You can see all your scheduled payments, see a breakdown of your transactions each month, automatically categorised, or view them by merchant.
The bank has a savings goals feature. You can use this to create specific pots, set up targets and schedule regular top ups.
Funds are ring-fenced from your regular balance so you won’t spend them, but you can transfer the money back and forth if you need.
Pots earn interest at the same rate as your general balance.
While it won’t be enough to retire on, Starling also offers interest on your balance. You get 0.5 per cent on balances up to £2,000 and 0.25 per cent on amounts over that.
The account also comes with free overseas spending and cash withdrawals. Unlike Monzo there is no limit on the amount you can withdraw abroad without incurring fees.
Starling already appears in This is Money’s guide to the best current accounts for overdrafts, as it applies one simple fee.
The bank has one flat rate of interest on both authorised and unauthorised borrowing, at 15 EAR per cent.
If you do go overdrawn by accident, or beyond an existing limit there is a £2 monthly cap on overdraft interest, and it waives anything under 10p.
You won’t be charged borrowing fees unless your net balance across all of the savings pots and your general balance falls below zero.
Managing your account
Starling supports Apple and Android Pay, and you can top up your account by bank transfer or debit card.
If you want to pay in a cheque you have to send it by post, and cash can be deposited through NatWest, but you will need to contact Starling’s customer services first.
You can contact customer services by live chat, email or phone.
You can lock your card, get a pin reminder and report a card lost or stolen within the app.
You can also individually switch off the card for ATM withdrawals, online payments, mobile wallet payments and contactless payments.
The app itself can be opened with a pin code or with a thumb print. It also offers location-based fraud protection using your smartphone’s geo-location technology.
Savings pots: B offers an attached savings account which you can use to set up savings goals
B – the app-based off-shoot of Clydesdale and Yorkshire Bank – launched back in May 2016.
Unlike Monzo and Starling there is the option of banking in branch with the parent banks or at its few dedicated B branches.
Last year it offered a whopping £250 to new customers to sign up, but there have been no generous cash carrots since.
Again, it tags your transactions automatically into different categories to help you see where you cash is going, you can set up budgets to help you cut spending across each category individually and projections to predict what your balance will look like at the end of the month
You can also create savings pots within the attached account to reach particular goals and regular automatic payments.
The account itself comes with in-credit interest of 0.5 per cent up to £2,000, while the savings account pays a slightly higher rate of 0.75 per cent, with no limit.
You can move cash between the two instantly and set up sweeps to top up your account from a savings pot when you balance reaches a certain limit.
You won’t want to use the account abroad – it charges 3.75 per cent (min £1.50) per transaction every time you withdraw cash abroad. If you make purchases abroad the fee is 2.75 per cent (minimum £1.50).
The bank does also offer a credit card which affords fee-free spending. This works within the same app and charges interest at 9.9 per cent.
You still want to avoid cash withdrawals on the card as this incurs a 3 per cent with a minimum of £3.
Its borrowing charges are slightly more complicated than Starling and Monzo.
Any planned borrowing will cost £6 per month plus 12.5 EAR per cent.
One useful feature, B offers a two-day grace period for you to avoid charges and there is a £25 fee-free buffer.
You will need to watch out for unplanned borrowing as that will clock up hefty bills. B charges £6 per day and returned items cost £15.
Again, there is a two-day grace period to repay but the unplanned borrowing buffer is only £10. B caps fees at £100 per month.
Managing your account
You can speak to customer services by phone or email or through a live web chat.
You can pay in cheques by taking a picture using your smartphone camera within the app or in branch.
You can also use its branches to pay in cash and cheques. You log in using a pincode or thumbprint but there is no feature to freeze your card.
Revolut – the digital wallet that looks like a current account
Revolut lets you split the bill with friends and make overseas transfers at near perfect rates
There is a handful of new companies offering prepaid cards or accounts which look and act in much the same way as a traditional current account.
The major difference is that while they are regulated by the Financial Conduct Authority, it is under Electronic Money Regulations. This means that your money isn’t covered by the FSCS. Instead, customer funds must be ring-fenced in a separate account with another bank.
Should something go wrong this means your cash should be safe. However it won’t protect you if the bank where the ring-fenced funds are kept goes bust.
In the case of Revolut, client funds are stored under a segregated account with Lloyds Bank.
Revolut has two ‘bank account’ options – a free version and premium version costing £6.99 per month.
Similar to the likes of Monzo and Starling Bank, accounts can be opened via its app and offer perks including fee-free spending and withdrawals abroad (up to £200 or £400 per month depending on which account you have).
The app categorises your transactions and lets you send money instantly using mobile numbers.
A unique perk is that users can send money to 120 different countries without loading the exchange rate.
The provider recently launched a pay-per-day travel insurance policy and it has also branched out into cryptocurrency trading, device insurance and loans.
Verdict – online current accounts
Andrew Hagger, of Moneycomms, says: ‘I quite like the new online banks – Starling, Monzo and B – they all offer the basic ability to set up direct debits, standing orders and use Faster payments plus the FSCS guarantee up to £85,000.
‘However that’s where the similarities end – they are far more sleek and agile and offer additional budgeting tools and insights into your spending habits – not a must have for many but will certainly help some people manage their money more effectively.
‘Starling and Monzo will benefit from open banking relationships in the coming months and years, forging relationships with online mortgage and investment providers and this will be an area where these new banks will be able to drive revenue from referrals and sign ups of additional products.
‘B offers the benefit of a branch network should you have any cheques or cash to pay in. With Starling there is a PO box address to post cheques to (not ideal) but then again cheques are less common these days.
‘These banks offer something different compared to the old-fashioned high street banks with their sometimes unreliable technology – whether they will win much business from the big five will obviously take time, but it would be interesting to see their switching figures reported.’
THIS IS MONEY’S FIVE OF THE BEST CURRENT ACCOUNTS