The Rise of Digital-Only Banks in the UK – here are the top 4

In recent years, growing numbers of Britons have been forced to turn to digital-only banks due to the closure of traditional bank branches in their local area.

According to research by the comparison site Finder, as many as 16% of Britons have opened or plan to open a digital-only current account for this reason.

Bank Branch Closures and the Rise of Digital-Only Banks

High street banks have shut 5,355 branches since January 2015, according to consumer group Which?. This trend shows no signs of slowing down, as 102 bank branches have already been earmarked for closure in 2023.

If closures continue at this rate, they are likely to surpass the figure of 619 for 2022.

As a result, a quarter of UK adults currently have an account with a digital-only bank, up from just 9% of the population in 2019.

The Popularity of Digital-Only Banks

Digital-only banks, such as Monzo and Starling Bank, have grown rapidly in recent years. Monzo claims to have acquired over 7 million customers since its launch in 2015, while Starling Bank has picked up around 3.5 million customers since 2014.

JP Morgan’s Chase, which launched in the UK in September 2021, gained more than 1 million customers within its first year. Finder’s research found that an additional 10% of the population plans to open a digital-only bank account in the next 12 months.

Additional Reasons for the Popularity of Digital-Only Banks

While bank branch closures are a significant factor in the rise of digital-only banks, there are other reasons for their growing popularity. Digital banks are offering some of the best easy-access savings rates at a time when many high street banks are paying sub-standard rates. Kroo, for example, pays 3.03% in-credit interest, while Chase and Monzo offer linked instant access savings accounts paying 3 per cent.

Digital-only banks also tend to offer free transactions abroad, which many high street banks do not. Many of the big banks charge transaction fees when using their debit cards abroad, and they typically charge ATM withdrawal fees as well. Lloyds and Barclays, for instance, charge 2.99%, while NatWest and HSBC charge 2.75%. However, digital-only banks tend to spare their customers from these fees.

The closure of traditional bank branches in the UK has forced many Britons to turn to digital-only banks for their banking needs. The popularity of digital-only banks is likely to continue to grow, given the benefits they offer, including higher interest rates and the absence of transaction fees when travelling abroad.

Below we’ll take a closer look at the four most popular digital-only bank accounts on offer to Britons right now. 

1. Chase

Overview:

Chase is part of US financial giant JP Morgan, and launched in Britain in September 2021.

During its first year of offering bank accounts in the UK it hoovered up more than one million customers.

However, it is by no means a new player on the banking scene as it also has 56 million digital customers in the US, and its parent company JPMorgan manages trillions of pounds of assets.

Standout features

• One per cent cashback on card spending for 12 months (capped at £15 a month)  
• Cashback offer extends for one-year if you deposit £500 a month into the account
• Access to linked easy-access savings account paying 3%
• Round up transactions to put saving on autopilot with 5 per cent interest
• From April 2023 you can earn 1% interest on current account balances
• There are no charges for using the Chase debit card abroad
• It also has a numberless card for an extra layer of security

App rating:

• Apple app store: 4.9
• Google Play: 4.6

Take note:

It is worth noting you will need a relatively new smartphone to run the account.

Beware the savings tax trap 

 Many savings deals pay more interest than they once did – but these rising returns also mean many more savers paying tax.

Any savings interest basic-rate taxpayers earn above £1,000 a year – the personal savings allowance – is taxed.

Higher-rate taxpayers have an allowance of £500, while additional rate taxpayers don’t get anything. 

Your smartphone will need to run iOS 14 and above, or have access to Google Play on Android 8.1 and above, which means some devices are not supported due to hardware limitations.

The bank also does not currently offer joint accounts, so it will not necessarily work for everyone.

Chase does not allow overdrafts, so the limit on the payments you can make is the amount you hold in your account. 

2. Monzo

Overview:

As online-only banks go, Monzo has one of the longest histories and biggest customer base.

It was founded in 2015 and claims to be the UK’s largest digital bank with more than 7 million customers, adding 150,000 new ones every month.

Standout features:

• Monzo has a linked 3% instant-access account
• Instant spending notifications and spending budgets on things like groceries
• Categorises spending into groups such as transport, groceries and eating out
• No fee for using card abroad

App rating:

• Apple app store: 4.6
• Google Play store: 4.1

Take Note:

There are three types of personal current account to choose from: the standard free account, the £5 a month Monzo Plus and the £15 Monzo Premium.

Most people opt for the free account. The other two accounts offer extras such as phone insurance or rounding up spare change into savings.

Overdraft rates are either 19%, 29% or 39%, depending on credit score.

3. Starling Bank

Overview:

Originally a smartphone-only bank with an offering aimed largely at holidaymakers, Starling has increasingly grown into a legitimate, profitable, challenger to Britain’s biggest banks.

It currently has more than 2,000 employees and serves roughly 3.5 million current account customers.

It has consistently gained the highest number of net accounts through the official Current Account Switching Service since the start of 2020.

Standout features:

• No fees overseas
• Instant payment notifications
• Round up transactions to put saving on autopilot
• Your spending categorised
• Instant card locking security
• Split the bill with friends

App rating:

Apple app store: 4.9

Google Play: 4.5

Take Note:

Starling offers an arranged overdraft option. Rates are charged at 15%, 25% or 35% depending on credit score. 

4. Kroo

Overview:

Although founded back in 2016, Kroo is very much the new kid on the block, having launched its current account at the end of last year after being granted a full UK banking licence.

Kroo is also aiming to appeal to people by promising to plant two trees for every account opened, with the aim of planting one million trees by the end of 2023.

Standout features:

• It is paying 3.03% in-credit interest on balances up to £85,000
• No additional charges when spending abroad
• It will plant two trees for every current account opened
• Bill splitting feature allows its customers to spend, track and settle up with friends
• Instant spending notifications
• Breaks spending into categories, such as transport, groceries and eating out

App rating:

Apple app store: 4.7

Google Play: 4.4

Take Note:

As the newcomer this is the most untested of all four bank accounts. There have been reports of long wait times due to high demand for those wanting to sign up.

Kroo does offer an arranged overdraft option. 

The rate is charged at 24.9%.