Should you move to app-based bank Monzo?
More than five million people now use Monzo, and it tends to gain more new customers each quarter than the bulk of the established banks.
It’s full of innovative features which mean it’s a very different banking experience to what you’re probably used to. Plus you can get a free £5 bonus for signing up.
Here’s my take on Monzo.
What is Monzo?
Monzo is one of a growing number of digital banks that don’t have branches or even call centres. Instead it is operated entirely through an app. The idea is that everything has been developed from scratch to work in a digital age, unlike the other banks who’ve had to adapt and migrate existing systems – which doesn’t always work (hello TSB).
It started life as a prepaid card, but moved over to a full current account in 2018. It now works just like any other account. You get a Mastercard debit card, and you can download bank statements if needed.
As I reported last year, the bank is struggling to make ends meet, and its recently added new charges and restrictions for account holders and introduced fee-paying versions of the account.
But it’s a fully licensed bank, meaning your money is protected under the Financial Services Compensation Scheme if it was to go under.
Types of Monzo account
There are three different personal accounts from Monzo. The standard free version, which this review will focus on, and two paid for accounts: Monzo Plus and Monzo Premium.
You can also get a joint account, a 16-17 account and a business account.
As I said this review is about the free version of Monzo, but all the features listed here are also available on the paid options.
The key selling point is the app, which is packed full of innovative features to help you manage your money. Of course with anything new the other banks are trying to emulate them, but Monzo still has more than most others.
Here’s my take on some of Monzo’s key features:
Spending with Monzo
Mastercard debit card
Monzo’s debit card is one of the most identifiable – coming in a “hot coral pink” colour. It’s a Mastercard so you won’t have any issues using it. You can add the card to Apple Pay and Google Pay.
As soon as you use the card you’ll get a notification on your phone as to the amount. You’ll see it in the app too – unlike some banks where it can take a while to come through. This is particularly handy abroad as you’ll see exactly what you’ve spent.
This feature is essentially a list of all the regular outgoings you pay each month, from bills to subscriptions to transfers.
Adding receipts and notes
You can take a snap of your receipt and attach it to the transaction or add notes about the purchase.
You can spend on your card overseas and not get charged any fees. This was the main motivation for me to get the card back in 2017 when all spending and withdrawals were fee-free.
Since 2018 there’s been a limit for taking out cash, meaning there’s a 3% charge on anything over £200 in a 30-day period (£250 in EEA).
This limit means my top-pick for overseas spending is Starling Bank. However, if you don’t think you’re ever likely to take out more than £200 in cash or if this isn’t your primary concern when choosing a bank, then Monzo is still a decent option.
There’s a £250 limit every 30-days on cash withdrawals in the UK, unless you meet certain condtions. More on this below.
Split the bill
If you want to split the cost of a purchase with other Monzo customers you can easily and quickly do this within the app. However, it’s no use if they’re with another bank.
Budgeting with Monzo
One of the early selling points for Monzo were the budgeting features. And this still stands today – in fact I think it’s one of the best reasons to consider an account. You’ll get a much greater understanding of where your money goes, and some tools can help prevent you overspending too.
A classic budgeting method is the “jam jar” or envelope system where you physically divide your money for different expenses, eg bills or food. Well, you can do that digitally with Monzo via a feature called Pots.
These are separate parts of the your account where you can move money, essentially partitioning your overall balance into smaller amounts.
You can have 20 different Pots and they can each have the name and photo customised to show their purpose.
This could be specific spending needs, such as a Pot for your rent and nights out, or to act as savings goals. To use the money in most Pots you need to transfer the money back to your main account.
The exception is the Pot you choose for bills. Here you can add in any direct debits and standing orders and the money will be moved from the bills Pot to cover the payment.
I love this feature as it really helps you separate your essential spending from your ‘discretionary spending.
You can make it easier to split money paid into the account across different Pots using the salary sorter. Sadly it’s not automated, but it does remember the previous proportions so if you want to do the same each month it’s an easy click.
It doesn’t even have to be your salary, any deposit can be split this way, but these payments in must be over £100.
Tracking your spending
The app also tags all your spending with categories such as ‘Groceries’ and ‘Transport’. These allow you to see at a glance where the money is going. You can’t customise the categories with the free Monzo account.
This feature is quite hight level, but better than options in most other banks. It’s essentially a spending budget where you set limits for each category. Say you set the ‘Eating Out’ category to £100 a month, each transaction tagged to this category will reduce the total. The idea is you’ll get an indicator that you’re about to go over your set budget for that month.
Left to Spend
You’ll see this on the home screen of the app. This overall figure tells you how much unallocated money you have left until the end of the month (or a different set day each month if you want it to tie into payday).
If you don’t have the budget feature set it’ll be the total balance in your main account (not including your Pots) minus any committed spending.
If you do have budgets, it’ll use the total you’ve allocated minus what you’ve spent into those categories and the committed spending.
Saving with Monzo
There are two types of Pots to help you save. The official savings pots pay interest, but the rates can easily be beaten elsewhere. So it’s best to ignore these.
But you can also use standard Pots as places to separate money for all your savings goals from your main spending account. You can move money to these pots manually and set up scheduled payments (essentially standing orders).
Automated savings and challenges
You can also automate moving money into Pots based on certain challenges and conditions. I really like this feature.
The easiest one to access is the Round-Up Transactions option. You can select this on a designated pot. Every time you make a purchase Monzo will round up the amount. So say you spend £13.42. That will get rounded up to £14, with 58p moving across to one of your savings pots. It’s a nice way to make sure you don’t forget to put some extra cash aside. And even though it’s a small amount, it can quickly add up.
You can also use Monzo to automate the 1p savings challenge, where 1p is moved everyday or variations of this. Or taking it further you can create rules (via free service called IFTTT – If This Then That) such as move money every time it rains or when you go to a certain location.
More on these in my video below.
Easy account sharing
This is such a useful feature. You can send your account number and sort code quickly via messenger, email and other apps on your phone with a few clicks, or you can select and copy the details.
PIN and card tools
Monzo was one of the first banks to let you check your PIN on the app – though many more are doing this now. You can’t change it in the app though – you still need to do that at an ATM.
Another feature that other banks have copied is the ability to freeze your card if you think it’s been lost.
You can also see your debit card number via the app. It’s hidden but can be revealed with your PIN. This is handy if you don’t have your card on you but need to make an online transaction.
Though this can be turned on and off, it’s a good extra to have if you are someone who struggles with gambling.
You can choose to receive your salary at 4pm the day before it’s due to hit your account. Monzo essentially advances the payment as it can see the transaction pending – but only if your employer uses Bacs to pay you.
Though not great, Monzo overdrafts can be cheaper than most other banks now they all charge around 40% interest. Depending on your credit rating you’ll get charged 19%, 29% or 39%.
Monzo fees and restrictions
Since 31 October 2020 there have been some new charges for free Monzo customers.
Cash withdrawal fees
First up there’s a 3% charge on cash withdrawals above £250 every 30 days in the UK and European Economic Area. Previously there had been a £200 free limit for overseas cash withdrawals, and that will remain for countries outside of Europe.
This might sound quite harsh, but actually I don’t think it’ll have much impact (On its blog, Monzo says 79% of customers wouldn’t have paid the fees based on the last year).
The main reason is most Monzo customers don’t use cash, so a £250 limit will be more than enough.
Plus people who are using Monzo as their main bank account aren’t hit by the fee. This is defined as paying in at least £500 each 35 days and having one active direct debit. This exemption also applies to anyone receiving DWP payments each month or a student loan payment every eight months.
And if you don’t use your Monzo account as your main account, then you can just use your other account to take out cash.
Card replacement fees
There’s a £5 charge for replacement debit cards, unless your card has been stolen, expired or compromised by fraud. Again those defined as using Monzo as their main account are exempt and can get two free replacements a year.
Cash deposit restrictions
As well as the charges for taking cash out, you also have to pay to deposit cash. It’s £1 each time using a PayPoint location. There are also limits on how much you can pay in. Each deposit is capped at £300 (so you’ll pay the charge on each deposit), plus there’s a limit of £1,000 every 180 days.
I’d say even if you rarely use cash it’s another good reason to have more than one current account.
It’s a really good bank account, though I’ll never understand the almost cultish fandom I’ve seen from people I know with a Monzo card.
The budgeting features are fantastic, and I do think they can help you keep track of your spending. I really like the card management features too – such as revealing the PIN and debit card number.
My favourite extra is the ability to customise all the ways you can boost your savings – though they’re more fun than essential. I still recommend using standing orders to move money to separate savings accounts with decent interest rates.
And though the overseas spending feature is great, the limit on cash withdrawals means there are better options. In fact, if you’re thinking of changing bank then I’d say you’re better off taking advantage of the offers available from other banks.
All in all, I’d really recommend it to anyone who needs help with their budgeting. However I wouldn’t make the move to use it as your only account.
Since the primary way to manage Monzo is via the app, if your phone battery dies, you lose your phone or there’s a technical issue with the app then you’re pretty much stuck! There is a telephone help desk, but there are no bank branches to visit or websites to log in to.
And of course other banks provide you with things like cashback on bills or high-interest rates – all worth taking advantage of.
The aforementioned financial worries shouldn’t be an issue right now but they are worth keeping at the back of your mind.
However, if you’re happy to have more than one account then you could get the best of both worlds as use a standard Monzo account for your everyday spending, with your savings or bill payments sitting with a different bank.
I’d give it a go. You can always use it as a switching account if you don’t like it!
How to get a Monzo card
You simply download the app and apply.
Monzo £5 welcome bonus
New Monzo users can also get a £5 refer-a-friend bonus. They need to sign up via this link, then use the debit card within 30 days. If you don’t want to wait for this to come in the post then you can get the digital details from the app.
You’ll also be able to share your own link with friends once you have the account. They’ll get the same £5 when they join, and you’ll also get another fiver for each one (up to £500).
Watch new videos every week on the Andy Clever Cash channel, plus a regular live Q&A