Monzo customers can now earn interest on their savings – but there’s a catch
Monzo customers can now earn 1 per cent on their savings, but you need £1,000 to open an account
MONZO account holders will now be able earn interest on their savings, but there’s a catch - you need £1,000 to open an account.
The new savings account pays 1 per cent a year interest, which is paid monthly.
This is the first time that Monzo customers have been able to earn interest on their savings.
The digital bank, which is based around a smartphone app that analyses users spending, is adding interest-earning savings accounts as an upgrade to its existing “Pots” functionality that launched late last year
The concept is simple: adopt a jam-jar mentality and set money aside for specific things whether its a holiday, Christmas or a new car.
Customers can have up to 10 Pots and money is added manually. Customers can choose whether to use scheduled payments or round up their day-to-day transactions to the nearest pound which is then sent to a specific pot.
The savings accounts are flexible, so savers can take money out of their Pots at any time, but will not be able to get their hands on the cash until the next working day.
The money will be held by Investec Corporate & Investment Banking and pay the 1 per cent interest.
Monzo has more than one million customers and says it accounts for 15 per cent of all new bank accounts opened in Britain. This week it raised £85m from investors, taking its valuation to more than £1bn.
Everything you need to know about challenger banks
BEFORE you decide to bank with a challenger... here's all the most important questions answered
What is a digital bank
Digital lenders offer services such as current accounts and savings accounts, but instead of having a branch to pop into, you deal with them either through a website or an app on your phone.
Some apps will let you track your spending so you can keep an eye on your monthly budget.
What are their rates like
As they don’t have some of the overheads traditional banks do — and because they are trying to attract new business all the time — many app-only banks have been able to offer some great savings rates to tempt new customers. Make sure you compare the rates to those offered through more traditional banks, using a comparison site.
Are they safe to use? Check whether your chosen bank is regulated by the Financial Conduct Authority and whether it comes under the protection of the Financial Services Compensation Scheme.
The latter protects savings up to £85,000 if your bank goes bust.
But this new savings features is not the only reason that the firm differs from other challenger banks.
Earlier this year, it rolled out an initiative to make it easier for people without a fixed address to get a bank account and it has been applauded by the industry for its gambling block feature which allows customers to self-exclude from gambling transactions, particularly if this is something they have struggled with in the past.
However, the bank isn’t without it’s controversy. From last month, existing customers were prevented from topping up their accounts by transferring money from a debit card.
This means that users now have to add cash to their accounts by a bank transfer or have their salary paid directly into it.
Scrapping the service is hoped to save the the bank around £4million a year, which it currently pays in fees to a third-party for every top up made by debit card.
Getting rid of the service hit customers who use their accounts like a pre-paid card the hardest.
The banking upstart is rolling out the savings option to users in stages, notifying customers when they are eligible for the service via email.
The Savings Pots are covered by the Financial Services Authority and all its deposits are covered under the Financial Services Compensation Scheme (FSCS) which means savings of £85,000 per person per financial institution are guaranteed.
This means that money customers which have banked with Monzo outside of Savings Pots scheme is also protected by the FSCS separately, again up to £85,000.
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