The future of banking is here and it’s on your mobile – we’ve got the lowdown on the best app-based banks and how they work…
App-based banking, digital banking, challenger banks – whatever you want to call them, a new breed of banking has arrived. If you’re not part of the action, you’re missing out.
These new banking products – which range from current accounts to cryptocurrencies – exist purely on your smartphone. The apps flaunt the cutting edge of banking technology, including tools to help with budgeting, saving and even stock market trading.
And best of all, many services they offer are far cheaper than mainstream banks, especially currency exchange.
We’ve ranked and reviewed the best apps on the market, weighing up their pros and cons, so you know which one suits your needs best…
What are app-based banks?
As the name suggests, app-based banks exist purely in app form – meaning they don’t have any physical branches that you can pop into like traditional banks.
You’ll still have access to support and advice, usually in the form of a live chat feature in-app or a phone line, but you won’t be able to physically speak to someone face-to-face or deposit cash.
They’re all free to join, although you might come across some costs for premium products (all explained below).
If you go for a current account, you’ll be able to order a debit card in the post with a sort code and account number, just as you would when opening a current account with any other bank. You’ll be able to set up direct debits, transfer money and pay bills just the same.
The explosion of app-only banking is a result of the UK government introducing reforms to create ‘open banking‘. This basically means that your everyday bank must allow you to share your financial data (such as spending habits, regular payments, bank statements etc.) with budgeting apps or other banks.
Why choose an app-based bank over a traditional bank?
More and more people are turning to app-based banks because they give you greater control over your finances.
So far it seems most adopters are using them in conjunction with a ‘traditional’ account. There are no rules on how many current accounts you can have, so you don’t have to make a full switch.
Typically people will keep their normal current account for things like their salary and rent payments, and transfer a set amount of spending money into an app account each month to keep track of day-to-day spending.
These app-based banks boast brand new banking technology, and offer things you probably won’t get at your typical bank.
Common benefits of app-based banking include:
- Real-time notifications direct to your phone each time you spend money
- Budgeting tools that help you to set spending goals and over-spending alerts
- Fee-free overseas spending
- Auto-saving features which regularly set aside money in separate pots
- Fast in-app card cancellation
- In-credit interest (in some cases)
- They make banking easier, more transparent and fun!
All banking apps are positioned slightly differently and each excels in specific areas, which we explore in our reviews below.
Is your money safe in an app-only bank?
Plenty of people are still wary about storing their money in an app-only bank. What happens if the company goes bust? Will you lose all your money?
App-based banks that are fully licensed banks (that includes Starling Bank, Monzo and Atom Bank) are all protected by the Financial Services Compensation Scheme (FSCS) meaning that your money (up to £85,000) is protected should the bank go bust.
Meanwhile, Revolut and Monese don’t currently hold banking licences (so aren’t covered by FSCS) but are covered by the Financial Conduct Authority (FCA). Effectively your funds are stored completely separately in a licensed bank that the app company partners with. This means if one of these apps goes bust, you’ll get 100% of your money back. However, if the bigger bank used to store your money happens to go bust, your money might not be protected.