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Digital banking for students

You may have heard of challenger banks. Here's what they can offer to improve your stressful student life.

Have you heard of Revolut, Monzo or N26? They’re just starting to come to Canada and lots of young people are opening accounts with them. Should you do the same? What’s so special about them? Our guide looks at how digital banks can boost your stress-filled student life.

Why should students choose digital banking?

Challenger banks were born with the aim of “challenging” the big traditional banks (like the Big Five), by offering better deals, bureaucracy-free accounts and better online banking services.

Challenger banks don’t usually offer dedicated student accounts, but their basic current account options come with a series of features that make quite a lot of sense for the typical student who doesn’t know much about banking and whose monthly budget is a bit stretched.

In general, young people seem to like digital banking. A lot, actually.

There’s a bunch of different reasons behind it, but mostly:

  • Accounts are fast to set up. Opening a bank account takes a few minutes and you’ll get the card within a few days.
  • It’s mobile-friendly. Digital banks come with an app that usually looks good, works well and does cool stuff. For example, most show you data about where and how you spend most of your money. Also, most apps give instant notifications when you use your card to help you keep track of what you spend.
  • You don’t need to actually talk to someone to open an account. Don’t shrug your shoulders, we know you like this. You can even set up your account while waiting for your take out order to arrive with that Netflix crime documentary on in the background.
  • Free to join and low fees. Most challenger banks offer a free basic account and in most cases won’t charge you for basic banking services such as ATM withdrawals, bank transfers and card payments.
  • It can help you save money. When you’re a student, budgeting is an art form – how many rum and cokes can you afford if you still want to eat three decent meals a day? Digital banking apps often have features that can help you budget, by gathering data on your spending habits and regrouping them in clear, colourful graphs.
  • Young brands. For many young people, traditional banks are the banks of their parents. Challenger banks have been able to establish themselves as cool brands. That kind of feeling, although subconscious, often plays a part when you’re choosing a product.

What’s in a name?

These three terms are often used as synonyms and usually refer to the same group of companies. However, there are some distinctions to make:

  • Challengers. It’s a general word that refers to the idea that these companies are “challenging” traditional banks and their power in the market. Not all challengers are banks. Companies like KOHO, for example, provide services to help you save and spend your money in non-traditional ways.
  • Challenger banks. Challengers and digital banking apps are only entitled to call themselves a “bank” if they have a full banking licence, such as Monzo and N26.
  • Digital banking (apps). Challenger banks are usually digital-only, but there are exceptions. The term “digital banking apps” also encompasses budgeting apps such as Mint or Emma, which don’t actually hold any funds, but use Open Banking to connect to your current account and help you manage your finances.

What do you get with a challenger bank?

As we said, at the very least you should get a free account, a widely accepted card and a slick mobile app.

That’s all very nice and techy, but you’ll be wondering about the concrete rewards and advantages you can obtain with challenger banks. Traditional banks are sometimes better at treating customers with deals and discounts, but apart from easier and cheaper basic banking services, challenger banks also have some extra advantages, such as:

  • Overdrafts. Not all challengers offer overdraft facilities, but those that do allow you to apply for one from your banking app in a few seconds.
  • Free transactions abroad. Challengers are excellent for travelers and international students as many don’t charge you for using your card abroad and some even allow free ATM withdrawals outside Canada.
  • Extra rewards. They’re less common, but there’s some juicy stuff around if you search carefully. You could get a 0.5% interest rate on your current account balance or an introductory 1% cashback for 90 days on purchases from a pool of partners that include Netflix and Spotify.

Challenger banks and international students

Becoming the customer of a challenger bank can be a nice and tidy for international students: you need to be a Canadian resident but you usually don’t need a proof of address to apply and you can also use your card abroad without any extra fees, which is handy if you’re planning to spend some time back home during the holidays.

Traditional vs challenger banks

If you only look at perks and rewards, in some cases traditional banks beat challenger banks. With some traditional banking products, you can get discounts on entertainment and retailers, cashback options and travel rewards. It’s difficult for challengers to match that kind of offer. Moreover, traditional banks usually offer larger overdrafts, in some cases interest-free.

As for other banking products like loans and lines of credit, most challenger banks are only built for day-to-day banking and don’t offer the full selection of banking products that traditional banks do.

Pros and cons of challenger banks for students

Pros

  • Easy and fast to set up
  • Slick mobile apps and instant notifications
  • Budgeting features that can help you save more
  • Free transactions abroad

Cons

  • No physical branches
  • Fewer perks and rewards
  • Smaller overdrafts

Compare digital banking products

Since most challengers banks are new to Canada and haven’t fully launched yet, check out some of these digital banking products if you want to get your feet wet with online and mobile banking.

Name Product Interest Rate Promotional Interest Rate Min. Bal / Min. Deposit Account Fee
EQ Bank Savings Plus Account
1.25%
N/A
$0 / $0
$0
Enjoy zero everyday banking fees, free transactions and no minimum balance with a Savings Plus Account from EQ Bank.
Neo Financial High Interest Savings Account
1.30%
N/A
$0 / $0
$0
Get a competitive interest rate and unlimited free transactions with no monthly fees or minimum balances.
KOHO Earn Interest
1.20%
N/A
$0 / $0
$0
Opt into earning interest for free and earn 1.2% on your entire balance in KOHO plus an additional 0.5% in cash back on every purchase you make.
CI Direct Investing High Rate Savings Account
0.50%
N/A
$0 / $0
$0
With no fees and no restrictions, you'll earn 0.5% interest with the CI Direct Investing High Rate Savings Account.
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Compare up to 4 providers

Bottom line

As a student, you value things like instant delivery and notifications, easy-to-use mobile tech, and the freedom to travel without incurring extra fees. Challenger banks can provide all these benefits but beware they may lack the same infrastructure, banking products and rewards systems that traditional banks offer.

Check out our guide to digital banking in Canada to learn more about which digital banking products are already available and which challenger banks are heading our way.

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