Gone are the days when you had to head to the High Street to open a bank account and manage your money. The emergence of new technology has taken the banking world by storm and allowed challenger banks to do, well, just as their name suggests. These new banks are going head to head with traditional banks to allow customers to take care of their finances, all from their tablets, computers and smartphones.
Seeing as many of us use our phones heavily for admin and other important tasks, it makes sense also to consider managing your finances using your smartphone. Challenger banks provide apps to do exactly that, and they offer around-the-clock customer service so that if you have any issues, you can resolve them quickly.
Also known as online-only or digital banks, challenger banks operate entirely online to allow you the freedom to manage your bank account and money from anywhere. Plus, with a variety of banks to choose from, you’ll still be able to continue to use a standard account type, such as a business account or a current account.
So, if you’re considering moving to a digital bank, this article is for you. We’ll walk you through everything you need to know about online banks, from how they work and how to open an account, to the top 5 online banks we’d recommend. So, let’s jump in!
What is a digital bank?
Also called online-only or app-only banks, digital banks are a type of bank that exists solely online — usually in the form of an app. Unlike traditional banks, digital banks don’t have brick-and-mortar branches. This said, you’ll still have access to a customer support network and can get advice through the bank’s app, should you need it.
Digital banks also allow you to conveniently open an account and manage your finances online without ever needing to visit the bank in person. Furthermore, you’ll still receive a physical credit or debit card to use, so there will be no major impact on how you manage your money day-to-day.
What can you do with an online-only bank account?
Digital banks offer the same services as your traditional bank accounts, such as providing standard bank accounts, savings accounts, loans and mortgages. But as previously mentioned, you can also use online banking to manage your money without having to travel to a physical bank.
You can use your online bank’s mobile app to:
- Check your bank balance 24/7
- Make payments, e.g. transferring money to a friend or paying bills
- Check your bank statements
- Set up or cancel direct debits
- Transfer money between accounts
- Open and manage an overdraft
Should you switch from a traditional bank to an online bank?
Settling on a bank to use essentially comes down to what your needs are and personal preference. This said, more and more individuals are utilising an online bank account in conjunction with their existing traditional accounts.
To help you decide whether online banking is right for you, we’ll cover the pros and cons of having an account with a digital bank.
Pros of digital banking
There are plenty of benefits of banking with a digital bank, including:
- No paperwork is needed when opening an account
- New technology allows digital banks to offer services that traditional banks do not have the facilities for
- 24/7 customer support
- Thorough identity verification processes
- The banking app lets you check your bank balance instantly, from anywhere
- Many digital banks do not charge overseas fees when you use your card abroad
- Competitive foreign exchange rates if you do use your card overseas
- Digital banks have budgeting tools that help you get a better hold on your finances
- The apps have auto-saving features, which means that the app sets aside money into other pots — these are usually called ’roundups’
- It’s easy to cancel your card within your banking app if it gets lost or stolen
- The apps can use technology to provide you with spending predictions
Cons of digital banking
Online banking has many benefits, but there are some things to be aware of:
- Only a select few online banks offer unarranged loans and overdrafts
- To use online banking, you need a smartphone or tablet
- The apps rely on an internet connection or mobile data
- It can be difficult to deposit cheques and cash
- You can often get better rewards from traditional banks
Are online-only banks safe?
Yes, online banks are safe for you to use. They are usually regulated by a governing body, which in the UK is the Financial Conduct Authority — you can check if your bank is listed on the Register online.
Additionally, your bank may also fall under the Financial Services Compensation Scheme, which provides protection if the bank fails and cannot pay back your funds. If you hold money in a UK-authorised bank, the scheme will compensate:
- Up to £85,000 per eligible person
- Up to £170,000 for joint accounts
For added protection, online banks also have stringent security measures in place that ensures fraudsters can’t hack into your phone and your account if you’re logged in online or in the app.
What are the best digital banks?
To make your life easier, we’ve picked the top 5 digital banks and provided a comparison of what they have to offer. In this section, we’ll also give you a breakdown of what each bank offers so you can decide which one best fits your needs.
Starling Bank: Best for Everyday Banking
Starling Bank is a fully-licenced bank that was founded in 2014 and has been going from strength to strength since. It was voted Best British Bank at the British Bank Awards annually from 2018 to 2021 and the Best Current Account Provider from 2018 to 2022. Starling is also one of the biggest and best-known challenger banks — these are smaller banks designed to challenge traditional High Street banks.
The bank has plenty to offer, including:
- Personal, joint, and business accounts
- Real-time updates and notifications of payment-related activity
- Ability to freeze cards from the app
- Restrictions for spending issues such as gambling
- Insights into spending habits
- No overseas fees for spending
- Protected by the Financial Services Compensation Scheme
Monzo: Best for Budgeting
One of the earliest challenger banks, Monzo is excellent for budgeting and saving. It provides competitive interest rates and the ability to put your money into designated savings pots. You can also use the bank’s auto-save feature, which rounds up payments and deposits them into a pot of your choice so you can save money without feeling like you’re cutting back on spending.
Other benefits of Monzo include:
- Current accounts, as well as joint and business accounts
- Overdraft facility of £2,000
- Instant notifications about spending activity
- Direct debits and standing orders
- Freeze lost or stolen cards instantly using the app
- No overseas fees (up to £200 per month, 3% monthly fee after)
- Set budgets for spending
Revolut: Best for Holidays
Revolut is one of the fastest-growing digital banks in the UK. Due to the fact you can add funds to your card in several currencies, Revolt is great if you are a frequent traveller. Plus, if you opt for the premium account features, you can get travel insurance at no extra cost.
Revolut also offers:
- Instant spending notifications
- Auto-saving feature
- No overseas fees (0.5% above £1,000)
- Control card features, e.g. contactless and online payments
- Built-in budgeting
Atom Bank: Best for Savings, Loans, and Mortgages
Atom Bank is the UK’s first app-based bank. They were also the first digital bank to obtain a banking licence. Although Atom Bank does not provide current accounts, they are an excellent option for individuals looking to get a mortgage or savings account and businesses wanting to take out a loan.
Atom Bank also has the following benefits:
- Higher savings balance of up to £200,000
- Competitive savings rates
- Expertise in savings accounts, mortgages, and business loans
- Accounts are quick and easy to open
- No minimum account deposit for an Instant Saver account
Monese: Best for Overseas Students
Monese is a registered Electric Money Institution which means it offers safe banking so you can manage your money with peace of mind. Monese offered accounts that don’t require you to have a UK address or a credit history which is perfect for international students and individuals who have not been able to build their credit history.
Other benefits of Monese include:
- Specialists in current accounts
- Pre-paid card with the functionality of a debit card
- Transfer money abroad
- Accepted worldwide
- Free ATM withdrawals up to £200
- Available to all individuals within the European Economic Area
Overview of the best digital banks
|Digital Bank||Best For||Overseas Fees||In-credit Interest (AER Variable)||Arranged Overdraft Cost||Unarranged Overdraft Cost||How to pay in||Free Cash Withdrawals||FSCS Protection|
|Starling Bank||Everyday banking||None||0.05% up to £85,000||15%, 25%, or 35%||None||Cash at any Post Office, cheques via the app or by post||Yes||Yes|
|Monzo||Best for budgeting||None, but worldwide ATM withdrawals are only fee-free up to £200/30-day period, 3% fee after||None||19%, 29%, or 39%||As previous column, if applicable, or 39% (max £15.50/mth)||Cash at any PayPoint (£1 fee), cheques via post||Yes||Yes|
|Revolut||Best for holidays||None||Only available on a premium account||N/A||N/A||N/A||Yes||No|
|Atom Bank||Best for savings, loans, and mortgages||N/A|
1.50% AER Instant Saver, up to 3.40% AER Fixed Saver
|Monese||Best for overseas students||Free within the allowance of £2,000||None||N/A||N/A||Cash deposits at Post Office or Paypoint, cheques not accepted||No||No|
Here are some of the most frequently asked questions:
Can you get an overdraft with an online bank?
Some online banks will offer overdrafts, however, you will be subject to credit checks to decide whether you are eligible. If you are looking to get an overdraft, it is best to check your credit score and work on improving it if needed, before you apply for one.
It is also worth noting that you will usually need to apply for an overdraft once your account application has been accepted and the account is open.
How do you open an online bank account?
Unlike traditional banks, online banks offer a quick and easy account opening service that allows you to get an online account up and running in minutes. Depending on the bank, you can do this online or by downloading the relevant app from the Apple Store or the Google Play store.
When you apply for an account, you’ll be asked to provide your personal details, including your:
- Full name
- Date of birth
- Contact number
- Employment status
- A valid form of photo ID — this could be your passport or driving licence
Once you have completed this, you’ll be asked to take a photo of your ID and upload it, either through the smartphone app or by uploading a photo online on the website. At this stage, some banks may also require you to take a selfie-style video which they will then use to verify your identity against the ID you have provided.
After this, you’ll find out whether your application has been accepted. If it has, you’ll receive a welcome pack and your new card in the post within the following few days. In some cases, you may still be able to use your account before these arrive.
Can you switch online banks?
Yes, like most traditional banks, you can switch your account provider whenever you like. Many digital banks are covered by the Current Account Switch Service, meaning that your incomings and outgoings are automatically moved to the new account. Once this is complete, your original account will be closed.
Can you open a joint account with an online bank?
Yes, some online banks provide joint bank accounts. To open a joint account, both account holders will be required to provide their personal details and a form of accepted ID as part of the application. Additionally, in order to be eligible for a joint account, some banks like Monzo require you to have an existing individual account.