Digital banks, sometimes referred to as challenger banks, are app-based banks that don’t have physical branches. They started to gain recognition around 2014-2015 and have steadily grown in popularity.
Many people use digital banks alongside traditional accounts. This is because digital banks tend to be more limited in what they can offer, and some people still prefer being able to visit a branch in person.
However, there are some advantages to digital banks such as real-time notifications to your mobile, budgeting tools and spending alerts, round-up features to help you save in separate pots and easy in-app card freezing if you misplace your card.
Are digital banks safe?
Some app-based banks are fully licensed and are protected by the same Financial Services Compensation Scheme (FSCS) as high-street banks. This means that up to £85,000 of your money is protected should the bank go bust.
However, not all digital banks have UK banking licenses, so they aren’t covered by the FSCS but may still be covered by the Financial Conduct Authority (FCA). This means your money is stored in a separate account. Before you make any decisions on which digital bank to choose, check they have protection in place for your money.
5 of the top digital banks?
Here are five of the top digital banks and a summary of eachone. If you are thinking about using a digital bank, then check the currentproducts and rates for each, as these can change quickly, offering different incentives, features and perks.
Monzo
Monzo is one of the most popular digital banks and offers personal and business banking products. One of the advantages of Monzo is that there are no fees for using your card abroad or withdrawing cash overseas (up to £200).
There are no monthly fees, and there are some handy features such as bill splitting and salary splitting that help you manage your money easily.
Features:
Things to watch out for:
- Cash deposits charged at £1.
- Cash deposit limit of £300 per deposit and £1000per month.
Monzo is protected by the FSCS, so your money is protected.As well as their current accounts, they also offer savings accounts and overdraft facilities.
You can open an account from your mobile phone, and they’ll even help you switch accounts.
Starling
Starling Bank offers both personal and business banking, and like Monzo, has no monthly fees. The Starling current account was awarded a Defaqto rating of five stars in 2020, which means it is one of the best quality current accounts on the market.
You get real-time notifications when you use your card, can set up savings goals and gain insights into your spending habits.
Features:
Things to watch out for:
- Cash deposits must be made at a Post Office.
- Joint account only available if both parties have a Starling personal account.
Starling is protected by the FSCS, so your money is protected. You can set up your account using your mobile phone, and it’s easy to switch current accounts. There are no monthly fees or hidden charges.
Starling also offers a Euro card, designed for people who make frequent transfers to people in EU countries. Ideal if you have family overseas or a property abroad and need to transfer money in euros regularly.
Atom Bank
Atom Bank is a popular choice for savings accounts and mortgages, but unfortunately, they are yet to offer a current account. However, they have indicated that this is something they may provide in the future.
Savings accounts are fixed terms, and the interest rates vary depending on how long you save your money for. The rates offered by Atom Bank are often more competitive than high-street banks because they have lower running costs.
You can open as many different savings accounts as you want to save for various things and for different lengths of time. The maximum you can save across all accounts combined is £100,000.
Features:
Things to watch out for:
- No current account options.
- Savings are locked in for a fixed term (6 months to 5 years).
Atom Bank is protected by the FSCS, so your money is protected.
Revolut
Revolut can be a good option for those who travel regularly or make a lot of overseas transactions or money transfers. You can spend in over 150 currencies at interbank exchange rates.
Revolut also allows you to trade in cryptocurrencies such as Bitcoin, as well as commodities and stocks. There is no monthly fee on their standard account.
Features:
Things to watch out for:
- Not protected by FSCS.
- Monthly charge on Premium and Metal accounts.
Revolut is not protected by the FSCS, but they do ring-fence your money in a partner bank to protect it.
Monese
Monese aims to remove as many hurdles from setting up a bank account in the UK as possible. It can be great if you travel frequently or are an expat as you don’t need a UK address to open an account. You also get fee-free card payments and ATM withdrawals abroad.
Features:
Things to watch out for:
- No savings accounts or overdraft facilities.
- Money limits on ATM withdrawals.
- Not FSCS protected.
Even though Monese isn’t FSCS protected, your money is ring-fenced in a separate account which can’t be lent out by the account.
Comparing the different challenger banks
Other Challenger banks
As well as the five banks we have mentioned above, there are many other options for app-based banking, including Bunq, Moneybox, N26, Cashplus and Tandem.
The best bank for you will depend on whether you are looking for personal or business banking, current account, savings, loans or other products. Do a little research, read reviews and choose the bank that offers you the features that you need.
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