Should you join in on the dash for digital banks?
App-based financial-services providers are proving efficient and popular
As high-street bank branches close, older customers are switching to the sector’s digital challengers. Starling Bank has seen a 4.7% rise in sign-ups from over-65s in a year. That age bracket is now its fastest-growing customer group, with 39,000 customers. But the over-65s aren’t alone. Younger customers are leaving the likes of Barclays and Lloyds too. In the first nine months of 2020 Monzo’s customers increased by 39,776 while Starling’s climbed by 39,599.
Those that have made the switch to a digital bank seem happy with their decision. Customers at Monzo and Starling were most likely to recommend their current account, according to a survey last summer by the Competition and Markets Authority (CMA). “For the first time in three years of running the poll the CMA included branchless banks Monzo and Starling, which knocked the previous winner First Direct from the top spot,” says Kate Palmer in The Times.
The app-based banks have plenty to attract new customers. You can manage your accounts easily via apps on your smartphone and you can do things like pay in a cheque via the app rather than having to trek to your nearest branch. Starling’s current account is well reviewed thanks to its 0.05% interest rate and one of the lowest standard overdraft costs of 15% EAR (equivalent annual rate).
There are also no fees for spending or making cash withdrawals when you are abroad. Price-comparison site MoneySavingExpert ranks it as the best app-based bank account. Monzo too has no fees for overseas spending, and you can deposit cash into your account via PayPoint, the in-store payment service, for a £1 fee.
Both banks are covered by the Financial Services Compensation Scheme, so up to £85,000 of your money is safe and will be returned to you if the bank goes bust. They are also both members of the Current Account Switch Service (CASS): you should be able to switch your current account across seamlessly in seven days. Digital banks have as good, if not better, security than their high-street counterparts so your account can’t be hacked as long as you don’t share your passwords with anyone. Just make sure you only download official banking apps via your app store and regularly update the app so that it has the latest security features. Also ensure your phone is protected by a pin or another form of screen lock to guard your account.
If you do opt to use a digital bank you can also benefit from not having to enter your password every time you log in. If your smartphone has a fingerprint lock or facial recognition this can be used to log in. Just note that you must have a smartphone to open an account with Starling or Monzo as both are app-based banks.