Best Digital Banks in the UK

What Is a Digital Bank?

Digital banks are a relatively new and evolving market.

They are sometimes referred to as ‘challenger banks’, as they are fundamentally changing the banking landscape.

As the name suggests, these banks operate solely in the digital world. They have no physical branches you can visit. They do not offer face-to-face services.

With most new and digital products, digital banks are popular among millennials.

However, with various global lockdowns in 2020, these challenger banks were able to promote their services to a larger audience and prove their efficiency.

How Do Digital Banks Differ From Online Banking?

While they appear similar, digital banking is different from online banking.

First, digital banks do not have any physical branches.

Online banking is an additional service offered by bricks and mortar banks, such as HSBC or NatWest.

Second, online banking provides limited, essential features such as:

• Transfers between accounts or abroad
• Bill payments
• Setting up or cancelling direct debits
• Checking your balance
• Paying in cheques

Digital banks provide all that and more by re-engineering a bank's internal systems.

In addition to the standard online banking features, digital banks also:

• Send out spending alerts
• Create customer profiles for targeted product sales
• Allow for complete personalisation of the service

They are driven by data and analysis and are continuously improving their service.

For the bank owners themselves, digital banks:

• Reduce overheads and costs
• Enhance customer service
• Increase sales levels
• Ensure full legal compliance as systems can be immediately updated with new regulations

What Are the Benefits of Digital Banks?

Digital banks are:

• Easy to set up – Most only require a picture of you with proof of your identity, and verification takes no more than three days.

• Easier money management – Many of the challenger banks offer various ways to manage your money, from saving pots to spending forecasts to alerts.

• It is always available – Digital banking services and support is available every day of the year, no matter where you are in the world.

• Access to more product information – You do not need to visit a branch to find out, or apply for, products. It is all available on the app/website with someone (or a bot) waiting to answer your questions.

• Service transparency – As all the product information is available to you, so are any charges or fees.

• Personalised service – The software monitors your habits and product searches so it can provide better recommendations. For example, a student will receive different offers to that of someone self-employed.

• Enhanced user confidence – The software used by digital banks are some of the most secure in the world, making it harder for your information to be stolen. The regular updates also allow the banks to implement new regulations quicker and more efficiently.

The 9 Best Digital Banks in the UK

Anna is a business-oriented digital bank aimed at SMEs.

Account packages are based on your monthly income:

• £500 or less – Free
• £500 – £2,000 – £4.90 per month
• £2,000 – £20,000 – £9.90 per month
• £20,000 – £500,000 – £19.90 per month

Excellent for international transfers, Wise (formally TransferWise) is easy to set up: simply take a photo of yourself with a photo ID, wait up to two days for verification and attach your current account to your Wise account.

Monzo became a fully licensed bank in 2017 and offers multiple money management features.

Spending and withdrawals around the EEA are free. For the rest of the world, withdrawals are free up to £200 per 30 days – any amount over that incur a 3% fee.

Monzo offers a variety of accounts for personal and professional use:

• Personal – Free, Plus £5 per month, Premium £15 per month
• Business - Free, Lite £5 per month

Starling won the Best British Bank and Best Current Account Provider awards at the British Bank Awards in 2018, 2019 and 2020.

What makes Starling more appealing than its competitors is that it offers 0.05% AER interest on all balances below £85,000.

You make money without having to do anything.

The account is free to open, and you have the option to open a personal, business or sole trader account.

With business or sole trader accounts, add-on options start from £2 per month.

They include instant invoices, tax estimations, bookkeeping and options to set up in euros or US dollars.

Atom is a specialised service that offers competitive fixed mortgage rates and higher interest rates on saving accounts and is regulated by the FCA and FSCS up to £85,000.

TreeCard is yet to have its official launch; however, for every $60 (£43) you spend, they will plant a tree, making it an ethical and green banking option.

Final Thoughts

Digital banking is still a new concept, and there will always be doubts about its security and efficiency.

If you are someone who likes face-to-face interaction, then digital banking is not for you.

However, if you are looking to gain better control of your money, then a digital bank could be a good option.

For those considering opening a digital bank:

• Make a list of the features you would use
• Decide your financial goals – Do you want to save, invest or get a better handle your money?
• Consider how you would use the account and the costs associated with those actions – Will you want to transfer a lot of money or make cash withdrawals?
• Research the bank – Their values, licensing, regulators
• Take advantage of all the tools and features