If you’re a student looking for your first bank account, you may have heard of challenger banks. Here’s what they can offer to improve your stressful student life.
Revolut, Monzo, Starling… they’ve been around for a while and loads 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 uni life.
Digital banking deals
Free card worth £5 from Revolut
Click the button and enter your number to receive a free Revolut card.
Starling voted best British bank & current account
No branches, no fees, no paperwork. Get a smarter kind of bank account with the Best British Bank 2018 – all in under 3 minutes!
Get N26 the new bank you'll love to use
Manage everything directly in the N26 app. Set payment limits, change your PIN number and lock and unlock your card. All in real-time.
Download the Monese app and get your free card
Click the button to head to the app store, download the app, and your Monese card will be sent in the post.
Why should students choose digital banking?
Challengers are banks or banking apps that were born with the aim of “challenging” the big, traditional banks, such as Lloyds and Barclays, 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 Deliveroo 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 gin and tonics 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: challengers, challenger banks or digital banking apps?
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 quite a general word that refers to the idea that these companies are “challenging” traditional banks and their power in the market.
- Challenger banks. Not all challengers and digital banking apps are entitled to call themselves a “bank”, only those with a full banking licence can, such as Monzo and Starling.
- Digital banking (apps). Challenger banks are usually digital-only, but there are exceptions – Metro Bank is a challenger with a physical presence, for example. The term “digital banking apps” also encompasses budgeting apps such as Yolt or Money Dashboard, 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 if you open an account 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 travellers and international students as many don’t charge you for using your card abroad and some even allow free ATM withdrawals outside the UK.
- Extra rewards. They’re less common, but there’s some juicy stuff around if you search carefully. Starling, for example, gives you a 0.5% interest rate on your current account balance, while Curve card offers an introductory 1% cashback for 90 days on purchases from a pool of partners that include Sainsbury’s, Netflix and Spotify.
Curve card: Get £5 added to your card
- Simplify your finances with all your cards in one
- Earn 1% cashback with Uber, Spotify, Netflix and more
- Manage all your cards through the Curve Mastercard
- Real-time alerts tell you how much you've spent
- Download for free and get set up in minutes
Opening a bank account as an international student in the UK
Many traditional banks only allow you to apply for a student account if you have at least three years of address history in the UK, so if you’re an international student, you’re locked out.
In that case, becoming the customer of a challenger bank can be a nice and tidy solution: you need to be a UK resident but you usually don’t need a proof of address to apply and you can also use your card abroad without any extra fee, which is handy if you’re planning to spend some time back home during the holidays.
Revolut card: Free delivery worth £5
- Spend abroad with no fees
- Great for international students
- Simple to set up
- Visualise your spending in real time
- Trusted by 2 million users
Traditional vs challenger banks
If you only look at perks and rewards, in some cases traditional banks beat challenger banks. With traditional banks, you can get discounts on cinema tickets and retailers, cashback options and railcards that make your train trips cheaper. It’s difficult for challengers to match that kind of offer.
Moreover, traditional banks usually offer larger overdrafts, in some cases interest-free.
Pros and cons of challenger banks for students
- Easy and fast to set up
- Slick mobile apps and instant notifications
- Budgeting features that can help you save more
- Free transactions abroad
- No physical branches
- Fewer perks and rewards
- Smaller overdrafts
Compare digital banking apps