What are the best digital banks in the UK?

This article will discuss the best digital banks in the UK in 2020-2021.

Most people know the benefits associated with digital banks, but what are the best options in a crowded marketplace in the UK?

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Some of the options below are also available to non-UK residents as well, but that can always change.

Introduction

Traditional banking took over the Internet a few years ago and created a new way of understanding financial services. In digital banking, the Internet is key for opening a bank account, transferring funds, setting up direct debit, making remote payments, sending money transfers, and performing other banking transactions without visiting a branch.

All digital banking transactions are immediate and offer a high level of financial management, security and flexibility for the user.

To enjoy the benefits of digital banking how and where we want, all we need is a smartphone, tablet, computer or any electronic device with Internet access.

So what is digital bank? Digital banking is the digitization (or transition to online) of all traditional banking operations and software services that have historically been available to customers only at a bank branch. This includes actions such as

• Deposits
• Withdrawals
• Transfers
• Checking or saving account management
• Loan management
• Bill payment

Consumer preferences have quickly shifted towards online and mobile, but many financial institutions find it difficult to adapt their banking operations to online channels and small screens of mobile devices. 

Unfortunately, banks can no longer afford to postpone investments in digital transformation because customers are increasingly shifting from the bank to digital functions such as bill payment, mobile payments and loan applications.

In addition, until the last few years, banks did not foresee the huge shift in consumer behavior that would come with the millennial generation becoming the largest consumers of financial products. 

Today, over 70% of consumers report online banking at least once a month, which is why banks are investing in great online service capabilities.

Digital banking statistics in the UK 

According to statistics, over 1 in 10 Brits have fully switched to a digital-only bank, which really means many people are interested in digital banking. 

British digital banks (such as Monzo, Revolut, and Starling Bank) offer simple free services for people who want to immediately track their spending from their digital device. People really value their bank’s good digital services, which helps explain the continued growth in online banking use over the past 10 years. 

We have found the latest statistics on digital banking in the UK, on how people use their accounts and their future banking intentions. Some digital banks have even been recommended on the list of the best UK banks, which we will review in our article. 

So almost a quarter of the UK adult population have a digital bank account, which is 12 million people. Almost half of those 12 million people, hold less than £ 1,000 in a digital bank, and two-thirds of bank customers say they plan to fully migrate to digital banking in the future.

But why? Let’s see some of the essential benefits that people loved by using digital banking:

• Digital banking became a ‘blessing’ at a time when traveling to the bank for a simple fund transfer task was a challenge. Now people can save on travel time and transportation costs. Moreover, it has become very convenient for the working class and the elderly to do banking work without leaving their homes.
• With digital banking, you no longer have to wait for bank hours to complete any banking transactions. Now you can perform the necessary operations at any time convenient for them, 24 hours a day, 7 days a week, even on holidays!
• Traditional banking meant visiting banks for every transaction and tracking account history across all paper records. You now have the option to opt out of paperwork and receive your entire transaction history through monthly emails. 
• Traditional notifications and warnings have meant viewing or writing a calendar date. You can now receive notifications of payments due via apps and emails. This allows you to pay overdue bills on time ahead of schedule, saving yourself from fines. You can also set up automatic payments for your bills so that you don’t have to remember when to pay bills. They can pay utility bills such as electricity, telephone, gas, credit card, etc. at their convenience with the touch of a button. 
• You don’t have to go to the bank alone to report a loss or credit card. You now have the additional ability to report lost or stolen cards, activate cards, postpone lost cards and request a card replacement with the click of a button online.
• Since currency is exchanged on a daily basis, chances are that you have owned counterfeit banknotes and counterfeit currency before. However, digital banking currently precludes this possibility when money transfers are made digitally.

The number of digital banks is growing, but which of these “contenders” offers the best options for small businesses? All claim to be fast and easy to use, but other details differ. 

Later in this article we will try to discuss some of the best digital banks working in the UK, try to fix their pros and cons, overview them and highlight each one’s outstanding features. Here is a quick list of the banks we will talk in this article:

• Tide
• Monese
• N26
• Monzo

Let’s now start reviewing each of the mentioned digital bank, and we’ll start from Tide. 

Tide

Tide has been making a splash in the business banking market and has attracted more than 200,000 customers since its launch in 2015. 

It aims to modernize what can be the lengthy process of opening a business account, as well as the actual process of running an account more convenient with technology. 

There are no branches and everything is controlled from your smartphone, which means you can manage your business finances on the go.

Traditionally, when you wanted to open a business account, you had to make an appointment and then come with an ID and describe your business, and then wait for approval, which could sometimes take weeks. 

Tide strives to do things differently. The whole process can be managed online. No queuing or recording needed. All you have to do is download the app, explain what the business is and who the shareholders are, scan your ID and take a selfie to check who you are. 

Tide claims that most accounts can be opened within ten minutes. You will receive the full UK sorting code, account number and MasterCard business card. 

Usually Tide offers three different accounts:

• Tide Free account
• Tide Plus account
• Tide Plus Cashback account

Tide Free account is a free business bank account designed for small businesses and offers a lot of good features such as no monthly fees, a free business card MasterCard, availability of withdrawing £ 1 at ATMs, free expenses abroad, auto categorizations of your expenses, send, pay and track invoices, bank statements, the ability to export transactions to share with your accountant, availability to share money with sub-accounts, keeping up to 5 business accounts and much more.

Tide Plus account has the same features as a Tide free account, plus the following additional features for a monthly fee of £ 9.99 + VAT:

• Matte Black MasterCard
• 20 free transactions per month
• Priority in-app support
• Phone support from 9:00 to 18:00.
• Legal support service is available 24/7
• No fee if you spend over £ 10,000 on the card

Tide Plus Cashback account offers the same features as a Tide Plus account, but for a monthly fee of £ 49.99 + VAT, you also have access to the following features:

• Matt Black MasterCard
• 150 free transactions per month
• Dedicated Account Manager
• 0.5% Cashback on all eligible purchases in Tide

Tide pros:

• Quick setup
• Easy to track payments and manage expenses
• No monthly fees

Tide cons:

• No branches and face-to-face contact
• Does not accept cheque deposits
• No personal account

Monese

Monese was one of the first app-only banks to launch in the UK. The brand was founded by Norris Koppel, who found himself unable to open a bank account due to a lack of UK credit or utility bills. 

This is a problem shared by many people who do not have loans or credit cards, or who have recently moved to a new area, making it impossible to get their salaries or pay bills. 

Koppel decided to open his own 100% mobile checking account in 2016 and now has nearly 1 million customers processing over 3 billion transactions a year. 

It was also named the Best Applicant Bank in the European Fintech Awards and received € 1.1 million from the European Commission for Research and Innovation.

Anyone residing in the European Economic Area (EEA) can open an account with Monese. You can open an account by downloading the app via your smartphone or using the link sent to your device via the Monese website.

There are no street branches here, so you don’t have to trudge into town to open an account. You just need to go online, download the app and follow the step by step instructions. 

Unlike major checking account providers, you don’t need to provide local proof of address or have a good credit history. You will be prompted to take a selfie video using your smartphone’s camera and take a photo of an identity document such as a passport issued by any country to go through Monese money laundering checks. 

Monese will then verify your identity and you will receive your account number and sort code within minutes. This is much faster than at a regular bank, where you might have to make an appointment at a branch and then wait for your card to arrive in the mail.

You can send and receive payments immediately, but you will need to order your contactless MasterCard debit card through the app. Monese users still have to wait for their card to arrive, usually within three to five business days, or up to 14 days in other countries. Once it arrives, you can set up your card through the app using your four-digit activation code. If you choose the free account, it will cost £ 4.95 shipping.

The Monese debit card has the same features as any other debit card. You can shop online, shop in stores, withdraw money from ATMs anywhere in the world, and use contactless payments. You can fund your account, change personal information and access bank statements through the application at any time of the day.

Monese pros:

• Multi-currency accounts (£ & €)
• Quick and easy to set up an account
• Fee-free spending abroad 
• Direct debits and standing orders
• Spending categorisation and notifications
• MasterCard pre-paid contactless debit card
• Dual currency accounts

Monese cons:

• No overdraft or loans
• Several account limitations
• Free account has limited features

N26

N26 was one of the first app-based banks, founded in 2013 and launched in 2015 by founders Valentin Stalf and Maximilian Tienthal. 

The N26 was initially launched in Europe, attracting over 2.5 million customers in 24 markets, including the UK, where it launched in late 2018. 

N26 aims to be the first global application-only bank and has raised over $ 683 million in funding from some of the world’s leading investors. It has now launched in the US and has updated its N26 Black card to create the N26 You.

N26 is a full-fledged UK mobile based bank account and users can currently only select a personal bank account. The bank says it “makes sending, storing and managing money easier than making a cup of coffee.”

UK customers can open 3 different types of accounts: 

• N26 checking account
• N26 You account
• N26 Metal account

Signing up for the N26 is relatively easy, you must be a UK resident and over 18 years of age. The application is completed via a smartphone app or web app.

In order to create an account, you will be asked to verify personal details such as the country you live in, your first and last name, your date of birth and your address.

N26 offers free spending abroad for all account holders and free worldwide cash withdrawals for N26 You and N26 Metal account holders. 

If you have an N26 checking account, you can withdraw cash for free in the UK, but any foreign currency will be charged 1.7% of the value of the cash withdrawn.

N26 does not currently offer authorized overdrafts, so in the event of an overdraft, you will be charged 14.9% EAR (equivalent annual rate). 

The N26 You card has a monthly fee of £ 4.90 which gives the cardholder additional features such as free worldwide cash withdrawals and 10 additional storage locations. 

The N26 Metal card is charged a monthly fee of £ 14.90 which gives the cardholder all the features of both the current card and the N26 You card, plus access to a lounge key at select airports, travel and shopping insurance, and dedicated customer support and partners’ proposals.

Bank N26 is based in Berlin and is regulated by the German financial regulator. Your money is protected by a German deposit protection scheme of up to € 100,000, which is currently the equivalent of £ 86,000 (almost identical to the FSCS protection in the UK).

N26 takes care of security and protects your account with a password and PIN when creating an account. It also offers Mastercard 3D secure as an additional layer of protection when making payments online. If you lose your card or get stolen, you can immediately block it in the app and unblock it if you manage to find it.

N26 pros:

• Easy to use app
• Online banking
• Fee-free spending abroad
• Instant spending notifications
• Apple/Google pay
• In-app customer support
• Mastercard 3D secure

N26 cons:

• 1.7% charge for withdrawing cash abroad with the basic account
• No bank branches
• No telephone support and reduced hours chat support
• No standing orders
• No overdraft availability

Monzo

Another digital bank in UK called Monzo began its life in 2016 as a prepaid MasterCard that could be recharged via the app and used to withdraw funds abroad for free. The brand was founded by Tom Blomfield, Jonas Hackestein, Jason Bates, Paul Rippon and Gary Dolman, who previously worked at rival Starling Bank.

After receiving permission from the Financial Conduct Authority (FCA) in 2017 and opening a checking account, it has gained many followers and has grown into a full-fledged banking brand. His prepaid card has since been closed and users have switched to servicing a checking account.

Monzo positions itself as a bank that lives on your smartphone and is built for your lifestyle today and now has over four million customers using its debit card to manage their money and spend Worldwide. 

It even raised a record £ 1million in 90 seconds during a £ 20million crowd funding campaign in 2018. 

Here are some great features that Monzo offers its customers:

Salary Sorter – You can sort your salary by expense, savings and bills

Expense Budgets – You can easily set Expense Budgets to keep track of spending across various categories, such as eating out, and track how well you are feeling throughout the month.

Savings Pots – Create multiple pots to split your money and save on purpose. You can also set up an automatic save, which rounds off the spare change and saves it to one of your pots.

Account banks – Manage your direct debit and standing payments from bank accounts

Instant Spend Notifications – Instant expense notifications to see what’s leaving your account in real time

Free Cash Withdrawals Abroad – Free cash withdrawals in the European Economic Area (EEA) and up to £ 200 per month in other countries (thereafter 3% commission will be charged)

No transaction fees – spend your money abroad for free, no additional fees or exchange rate fees

Switching Energy – Switching your energy provider through the Monzo app and the ability to get up to £ 50 in credit if you switch

Shared Accounts – Create a joint account with another Monzo account holder.

Overdraft – Set a negotiable overdraft up to £ 500 (select users only). You will be charged a variable rate of 19%, 29%, or 39% EAR.

Apple Pay – Paying with your Monzo card at ApplePay

Loans – You will have a chance to get a loan up to £ 3000 with Monzo

Monzo pros:

• Easy to set up
• Suitable for budgeting
• Free expenses abroad
• Auto save
• Overdraft and loans
• Competitive savings interest rates

Monzo cons:

• Daily withdrawals and spending limits 
• Application only – Internet required and no bank branches
• £ 1 fee for local PayPoint cash deposit
• You can deposit a maximum of £ 1000 in cash every 6 months (£ 500 if you are 16-17)

To conclude

Choosing the best digital account for you or your business will depend on the specific needs of yours and of course on the requirements of your organization. Free accounts will be great for personal use and why not can be enough for a freelancer or very small business. 

However, slightly larger or more complex businesses may face limited free options or higher transaction fees if deposits and withdrawals are required regularly, so it would be better not save money but open a paid account.

Features such as integration with accounting software, billing capability, and expense automation save time and reduce accounting errors and can be a deciding factor. Likewise, if your business is related to travel, the most attractive accounts may be those that offer low or zero fees for currency exchange and transactions.

Above were some of the best digital banks in the UK, which you can trust and make your partner.

Further Reading

In the article below I focused on answering reader questions. In particular I looked at:

1. How can somebody become a millionaire in just one year. Is it possible, or just unrealistic? What options exist for those that are more patient?
2. How has Covid affected the real estate market globally? Has it only affected some markets or everything? What trends could we see in the future?
3. Why do people retire too early or is “too early” the wrong way to look at it? Are the reasons for retiring early always the same, or can they vary dramatically between people?
4. Which investments will be riskiest during 2021? Has this really changed compared to previous years now interest and bond rates are lower?

To read more, click on the article below.

I was asked “how do I become a millionaire in one year”? Here is my response.