We usually review investment solutions here at adamfayed.com, but some of our clients have asked us to review some of the new “challenger banks”.
In this context we will review Monzo – an online bank based in the United Kingdom.
Table of Contents
There’s one banking service that could literally skyrocket in the future for its modern approach and its catchy way of arranging all your expenses.
It surely needs some improvements but Monzo is undoubtedly one of the right candidates for best card and banking service in the UK.
It started as the perfect card for youngsters to spare money during their holidays for the free commissions it has offered and now it has become the best management tool to administrate your after-salary expenses in 2020.
Once Monzo launched their first card in 2015, back then the card was not a current account, it lacked most basic features, just direct debits and basic payment options, and it was not even called Monzo, it was first known as Mondo and the company had to change its name after it tried to register the trademark.
A quick host of users followed and the Monzo name arrived in 2016. Monzo offered fairly basic but very brightly coloured prepaid cards until 2018 when they launched their current account, almost exactly a year after they were granted their banking license.
Today the company is fast becoming one of the most popular challenger banks in the UK valued at £2 billion in the last funding round in 2019 with over 3 million customers.
As they continue to grow and expand, let’s take a look at their current account in detail.
It is relatively simple, you have to answer basic questions about your personal details, tax ID and you have to provide a proof for your address, in which you can send a utility bill or your driving licence, meanwhile to prove your identity you have to record yourself so that they can match you to your document and to be sure you are applying on your own behalf.
Once you submit everything, you enter in a waiting queue for your application to be reviewed and it could take from a few hours to some days. When you are granted the permit to own their card, the card will arrive at your house with the express courier in 1-2 days, which is by far one of the quickest card in the banking sector.
Activation and usage
Using the card is relatively straightforward, you set up the account, to start with, and you’re actually allowed to use also not your full legal name from the card but a different name of your choosing.
The activation of the card does not require any call, you just download their app from Google Play or App Store, you type in the long card number and when you typed it, the card is ready for usage.
From their app, you can freeze and unfreeze the card, and this is the first banking account, by far, to allow this type of setting, most banks still don’t allow it today, several years after Monzo did it. It is an extremely useful feature and there’s a good reason if everyone is trying currently to do the same.
Quite particular and funny is that you can personalise every account as you prefer, uploading photos that you like, you can upload personal photos or just random to specific pots, whether they’re saving pots or other kinds.
Transactions with Monzo
One more plus where Monzo stands out is that, differently to most banks, you are allowed to see all the transactions as they are made rather than when they are fully clear. And the difference here is that Monzo is using your authorization data to show you transactions rather than the fully clear transactions data.
The difference is that the moment you go to a shop and start spending, first authorization is run asking if they can process the payment from this card number and if you authorize it and the payment goes through, it still takes a day for the actual full clearance to happen.
When you navigate into your transactions you can see the category, you can assign them to whatever you like, for example, expenses for the house, and you can set it as a recurring transaction, therefore Monzo will remember it for the next payments, and it is good for your self-accounting, you can also upload receipts if you want or split bills with other people.
Surprisingly, when someone sends you a payment or just a gift in money, you can immediately tell who he or she is as their card details are shown, and in case you want to send their money back, you can do it instantly by refunding it.
It is quite unique because in most cases if you wanted to send the money back, you would have to ask the owner to give you his or her details. Most banking services, in fact, do not tell you the account number, let alone other personal details like their name. This is generally a feature of prepaid cards, such as PayPal.
Salary administration and the pots trick of Monzo
When your salary comes in, or any other type of payment or income, you can automatically set it up to be subdivided into pots, therefore, if you have rent to pay, utility bills to pay that you have to pay every month, you can automatically assign some of your money to go in each pot of each expense target.
There are two types of pots in Monzo, the savings’ pots and the regular account pots. The two are separate things and they work slightly differently.
- With your account pots, you can split your money into different categories, each one for a different expense target, so that you can use the money left for different needs not related to the categories. So if you want to assign every month just £100 for going out with friends, £800 for rent and £500 for other needs, you can do it. And each time the salary kicks in, these pots are filled first.
- There are two groups of savings pots they offer and they’re closely integrated into the current account but they’re not part of the current account, they are a different form of account you can bolt-on and even if there are quite a few similarities and it is provided by third-party companies like Investec. Monzo offers you:
1- The easy access pot, immediately available, where you can get your money back whenever you want and it has a minimum of £10, so you have to carry at least £10 to start and during this year, with Investec, you can expect a return of 0.93% on your deposit, in a regular saving’s account or flexible ISA.
2-The second pot is the Fixed Term, you have to deposit at least £500 and you have to leave it there at least for 12 months, the rate is considerably higher, between 0.90-1.32%, but it’s actually not that good compared with other financial products you can take advantage of elsewhere. And the fact you have to part away your cash for such a long time just for 1%, without any way to have it back, and having to put at least £500 in, isn’t really great at all. I would consider other options to save money.
One thing to notice is that, when they say that the withdrawal of money is immediate from your flexible savings account it’s not that immediate, and if you read their Terms and Conditions, you notice that they say that they will charge you the money only at the end of the working day as long as you submit your request by 5.00 p.m. on the previous working day.
The subdivision of pots
The pots you create category by category in order to pay your bills or other liabilities can be further divided. From a utility bill category, you can further subdivide it in a pot for the electricity bill, a pot for the water bill, a pot for the gas bill. So when the salary comes in, they get instantly filled and automatically process the payments, managing your account down to the detail.
Borrowing from Monzo
A current account is not necessarily a borrowing tool and Monzo offers you primarily a current account, but there are two ways you can borrow money from them:
- The first is the overdraft and it only opens up to you once you begin paying a salary in and showing your behaviour so that they can make some kind of assessment as to whether and they want to lend to your or not, and if they don’t have enough data you will just get the following message:’’ Not currently available’’.
When they arrange an overdraft for you it is considerably expensive compared to other banking services, and it can go from 20 to 40% but reasonably lower than most street banks have recently been doing such as HSBC, placing everybody on a 39.99% rate.
There’s then another layer of overdraft and the way the phrased it is:’’ If you already have an existing arranged overdraft you will be able to pay an unarranged overdraft at the same rate but if you do not have it you have to pay 39.99% APR.
But actually it’s pretty hard to get into an arranged overdraft with Monzo, in fact they will block you online except for offline transactions. Therefore, if you are not directly linked to their bank account and you’re buying a plane ticket or paying for the petrol service at night time and they do not immediately process the exact amount, this can take you into an unranked overdraft.
- The other way you can borrow from Monzo is loans. Monzo loans have two price points below £7,500 it is 19.5% and for above £7,500 it is just 3.7%. It will cost you less interest to borrow £15,000 over a three-year period then it will borrow £3,000.
Interesting features you can’t find elsewhere
Split bills with your friends!
One really popular right now is the feature that allows you to split bills with friends and relatives and there are several ways of doing it. You can click on your friends that have Monzo from your contacts and split the bills that way there’s a separate feature that uses Bluetooth and tracks your friends that are nearby, for example when you’re together in a restaurant and you can split bills without having to do any calculations.
Find other utility operators for gas and electricity
It is really sponsored in your app so as to push you to input all your personal details of your house or apartment, input how many bedrooms you have, the people living in it, the surface of the house, they will ask you how much you’re paying with your operator in utility bills and then it tries to sell you some more third party products in order to make more money, without any consideration as to whether you’re going to save or not, it’s just a revenue play and it makes it seem just a bit ‘’greedy’’.
Monzo abroad on your holidays
That’s how Monzo actually became popular among the youngsters who like to travel, in fact, you can use the card abroad for free, you can spend money for free on regular purchases, you can also withdraw cash for free, which is quite unusual, so you don’t get charged either the ATM fee or the foreign exchange fee up to £200.
After £200 you have to pay a 3% fee and that is not per day but on a 30-day period, outside of Europe. Within Europe and the UK standard usage applies.
Monzo in family
If you’re 16-17 you can have a Monzo card or one parent of yours can get you one, the only feature disabled is the borrowing feature. There’s a special version of the account of the 16-17-year-olds, it is basically the same as the one that is available to the general public, but you can’t have an overdraft and you can’t borrow loans. But generally speaking, it’s quite the same thing.
Some common issues with Monzo
One common issue Monzo users face is the ability to cash checks. It may seem old fashioned, but sometimes you may still receive one, from a relative, a buyer and above all the HMRC. The HMRC quite loves using checks if they took too much tax from you and a check is the only way to get your money back.
If one of those arrives in the post, the only way you can cash it in with Monzo is to send it in an envelope to Monzo, the postage is free, but they say it will take up to three weeks to process it and to get your money in your current account.
You can use some pin-point locations to deposit your cash in your account in the UK but there’s a limit, you can deposit only £1,000 and you will have to pay for it. If a relative of yours gave you £10 or £20 and you have to put it in your savings account, expect to pay at least £1.
Is quite difficult to contact Monzo. You can choose between chatting with them or to call them. Both the chat feature and the calls are quite slow compared to other banking services and if you choose the chat, it can take as much as one day to receive an answer.
You cannot send money abroad, you have to get a third-party provider to make it possible.
What do their customers think about Monzo in 2020?
The platform has an overall extremely high number of positive reviews on Trustpilot https://www.trustpilot.com/review/www.monzo.com that make it climb high at 4.5 out of 5 stars. Being them mostly positive, we will show you the most recent 5 positive 5-star reviews and the last worst review they received.
5-star review: I love Monzo… I love Monzo, and this comes from someone that has been working in this domain for the last 4 years. I’ve completely switched from my other bank account to Monzo.
5-star review: My favourite bank Simple, very easy to transfer, request and split bills with friends. The App is clean, aesthetically pleasing and always runs quickly. I like the round-up savings account, the budgets and saving pots!
5-star review: Honestly can’t recommend this app… I can’t recommend this app highly enough! It’s so clear and easy to use, you can make as many ‘’pots’’ as you want and it’s really easy to manage all these accounts. Monzo makes it easy to separately pay rent, bills and other stuff.
5-star review: Amazing Service and Staff – Best Bank ! I had a problem with a fraudulent transaction and they solved it in minutes! Natalie was awesome from the contact support. I really love their app. Amazing service! Best Bank ever!
5-star review: Love it It was really refreshing to be able to set remotely and be able to verify my identity without booking an appointment that involved me having to go into a bank. There are so many advantages I wasn’t aware of before switching to Monzo, I wish I joined sooner!
1-star review: Ignorant Support Staff When I first started using Monzo the customer support was excellent. Now it’s not the case as you’re bounced around between clueless support agents that do not even read what you’re telling them. I tried to report them a bug, and four agents later they just kept sending me generic responses and the issue has never been solved.
Monzo is the future of banking, it is revolutionizing it to each update we see. Once you receive your salary or any other kind of payment, you can divide and further divide in categories all the expenses you expect to pay for during the month.
The activation process is really easy and quick and also boys and girls between the age of 16-17 can use it with some limited features.
Transactions with Monzo are clear and immediate, you can see who is delivering you money, their details so as to be able to refund them of the money they sent you without asking them for banking details.
You can split the bills at the cinema, restaurant or for any other activity with your friends online just by going on their contact on your phone or by using Bluetooth.
You can put your money in a savings account and make some money out of it, in a flexible pot, flexible ISA or short term period investment with Investec that yields up to 1.3%.
Inside of the EU and UK, you can withdraw as much money as you want without expecting any fee even for the foreign currency exchange fee. If you are on holiday outside of the EU or UK you can expect to pay 3% on every other withdrawal you make over £200 over a 30-days span period.
It is fundamentally a bank account that does basic things really well but the exceptions you could face during your life could become from little obstacles to mountains difficult to climb.
Although you are allowed to borrow money from Monzo, you are expected to pay extremely high fees up to £3,000 loan and extremely low if you want to borrow a loan over £15,000.
Monzo’s third-party partners of Monzo are not well chosen. As we previously discussed in another article, choosing Investec is not a good option for your investments and you can expect an underperformance of your investments and at the same time losses or just a meaningless %. Therefore if you want to invest, invest outside of Monzo.
Monzo doesn’t seem to care too much about if you’re saving your money as they’re offering you more and more opportunities to spend your money on, like finding ‘’better’’ utility operators for gas, electricity and so on.
There are transaction fees if you want to deposit your cash on your account and they can be quite high for small deposits.
You cannot cash checks, you have to send it by envelope to Monzo and it takes up to three weeks for you to get the money.
Is Nutmeg a good investment solution?