What you need to know about: Monzo

Written by Lori Campbell on 14th May 2020

With most banks closing branches or offering reduced opening hours due to the coronavirus crisis, more people than ever have been turning to technology to manage their money.
However, it can be easy to feel confused and overwhelmed by the sheer number of apps and products on offer – especially when they all appear to do the same thing on the face of it.
In response to demand for more guidance on how to choose between different products, Good With Money has introduced ‘need to know’ product and provider reviews.
Here we look at Monzo – a digital challenger bank that offers current and savings accounts – and now personal loans – all through an app on your phone. 




The deal

Monzo is a UK digital challenger bank that operates entirely through an app on your mobile phone. It offers a full current account for personal and business customers, integrated savings accounts (offered by other banks but still managed from your app), and personal loans. All with its signature bright coral Mastercard.

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User-friendliness

Monzo is extremely easy to set up and use, and the app is colourful and fun – and packed with cool features (see below). As long as you are comfortable doing all of your banking through your mobile phone, Monzo makes managing your money super simple.

 

Is it safe?

Yes, it is as safe as any bank. Your money in Monzo is protected by the Financial Services Compensation Scheme (FSCS) up to £85,000. The FSCS is an independent statutory fund set up to safeguard consumer finances in the event of a bank being unable to meet its payment demands. Monzo has full FSCS protection, covering up to £85,000 of your money – as is the standard for UK bank accounts.

 

Sustainable option

At the moment, Monzo has limited sustainable options for your money. However, it does offer customers the opportunity to switch to a green energy provider for a cash back reward. It currently works with OVO Energy and Octopus Energy (referral link). Octopus is a 100 per cent green energy provider, while OVO’s tariffs are 33 per cent green by default and you can upgrade to a 100 per cent green option for £5 a month. If you do decide to go through with the switch, Monzo will handle it for you.

With Monzo’s new savings marketplace and growing number of partnerships with other providers for its ‘savings pots’, it would be good to see it add some strong sustainable offerings for its customers.

 

Unique selling points

  • Salary sorter. As soon as you get paid, Monzo can divvy up your salary into spending, saving and bills.
  • Get paid early. Monzo allows its current account customers to receive their salary a day early.
  • Spending budgets. You can set budgets by category (eg Eating out, Entertainment and Transport) and get updates on how well you are keeping to them.
  • Savings and bills pots. Monzo lets you split your money into interest-earning savings pots – so you can have different pots for different savings goals. You can round up “spare change” from your purchases into its own pot, although this won’t earn interest. You can also get direct debits and standing orders paid from a ‘bills pot’, making them easier to budget for (this doesn’t include subscriptions though).
  • Instant spending notifications. Monzo will notify you when money leaves your account so you can see what you’re spending in real time.
  • Free cash withdrawals and no transaction fees abroad. Take out cash for free in the European Economic Area (EEA), or up to £200 anywhere else (there’s a three per cent charge after this). Contactless payments and spending overseas is also free.
  • Energy switching.  If you switch energy provider using the app then you can get up to £75 cash back.
  • Joint accounts. Open a joint account with another Monzo customer.
  • Personal loans. Monzo’s latest offering is a personal loan of up to £15,000.

The plus points

Monzo offers customers a simple, intuitive and ‘always available’ way to manage their money. Although it doesn’t have physical branches (which might put some people off), in many ways it works far harder than a traditional high street bank. Features including splitting your salary, rounding up spare change and offering ‘savings pots’ for different goals mean it’s easier to keep track of your spending and saving.

 

Any drawbacks?

The only real drawback is the £200 limit on free cash withdrawals outside of the EEA, when compared to Starling’s £300 limit. For most people this won’t really be an issue, but if you do like to travel to countries where cash is still king (in normal times of course), you might want to consider the alternatives.

Also, while Monzo is working to expand its range of features and products, it doesn’t currently have the level of choice of a traditional current account (no credit cards or insurance, for example).

 

Cost of use

Monzo is (almost) completely free to use both in the UK and abroad. Card payments are free in the UK and abroad, as are UK cash machine withdrawals up to £400 a day and £5,500 a month. Foreign ATM withdrawals are free up to £200 a month, with a three per cent fee after that. You can put cash into your account at all PayPoints, with a £1 fee per transaction. You can deposit up to £300 a day and up to £1,000 every six months.

Monzo is also due to launch a premium offering, called Monzo Plus, that will offer extra features (such as travel insurance, airport lounge access and foreign currency) in return for a monthly fee.

There is an optional overdraft of up to £500 that customers can activate in the app. Monzo charges an interest rate of 19 per cent, 29 per cent or 39 per cent EAR depending on your credit score.

 

How do these costs compare to competitors?

Monzo’s closest competitor Starling Bank offers slightly cheaper arranged overdrafts, with interest charged at 15 per cent, 25 per cent or 35 per cent EAR (variable) based on the customer’s credit score. It also has a higher limit for cash withdrawals outside the EEA (£300). It also offers free cash deposits for personal current account holders at the post office.

Revolut offers free ATM withdrawals of up to £200 per month with a two per cent fee after this. However you can choose to pay a fee each month (£6.99 or £12.99) for additional benefits including unlimited free cash withdrawals. It doesn’t have an overdraft facility so if a purchase exceeds your available funds the transaction will be declined.

 

Other options

Similar digital banks worth considering are:

Starling Bank

Revolut

Monese


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