Online bank accounts: five benefits you need to know

1. Cashback and retailer offers
2. Budgeting features
3. Special savings rates
4. Fee-free ATM withdrawals overseas
5. Hassle-free opening

What is the difference between online and high street bank accounts?

1. Cashback and retailer offers

Many reward bank accounts now offer perks on spending, such as a percentage as cashback for purchases at a particular retailer, useful if you were already planning to spend there. Cashback rewards can be a great perk, and can add up at the end of the month. Be sure to have a look over the terms though, as there is usually a cap on how much you can earn back per month.

Rewards with online bank accounts in the UK are an increasingly common feature and can be quite generous: at the time of writing these offers include earning interest on positive balances. This can vary depending on the bank, and cashback on all purchases is a perk currently available at Chase Bank who are giving one percent cashback. Many high street banks, such as Santander’s 123 account, offer these kinds of perks too, but they may come with a few more requirements in order for you to qualify. Some charge a monthly account fee, so it’s important to check which terms are easiest for you to meet and will work out best for you.

2. Budgeting features

Keeping track of your financial health, what you spend and earn, is simpler with online banking. Many mobile banking apps have budgeting features which allow you to chart your financial ‘trends’ and patterns. Clever budgeting tools with banks such as Monzo allow you to create reports, so you get an insight into your spending habits. These are a great alternative to a bank statement, as it can be customized for your goals and will calculate the data for you.

Digital banks can also offer ‘round ups’, where every time you spend, the amount is rounded up to the nearest pound. The change is then deposited in an online savings account, a great way to save a small amount without really noticing it’s gone. This feature is not unique to online banks but is a seamless way to put money away with little effort and can offer a generous interest rate. Chase has a round up account that currently offers 5% AER, and with high street bank Natwest, you can choose to double your round up amount, so if you really want to focus on saving, this could be a helpful way to reach your goals.

There are dedicated budgeting apps in the UK to help you manage your spending, if this is a feature you’d like separate to your bank account, take a look at our guide on some of our favourite budgeting apps to see what’s available.

3. Special savings rates

That brings us neatly on to savings rates. It was reported nationally in February 2023 that digital banks were giving some of the best savings rates for easy access banking customers, rather than those which lock away money for several years, compared to high street banks. On the day of writing, MustCompare found online-only savings and currents accounts like Chip, Tandem and Chase were offering instant access savings rates of over three per cent. So, if you are looking to save money, digital banks are worth considering as well as high street bank accounts, but make sure to check the terms and conditions.

For a deeper understanding of the online-only banking industry, our experts have put together a guide that takes you through all you need to know about online-only bank accounts.

4. Fee-free ATM withdrawals overseas

A popular perk commonly found at digital banks, which are great for holiday goers, is their stance on overseas fees. Both Starling and Chase offer fee-free worldwide spending, with realistic terms, such as a daily withdrawal limit, not too dissimilar to using your debit card in the UK. Many banks usually charge ATM fees as well as foreign transaction fees, which at the end of your trip can amount to quite a lot. Many people choose to have an online-only bank account purely to use abroad because of this feature, plus a high street bank account for their everyday spending such as bills and groceries at home.

Travel currency card accounts like Wise and Currensea are another option, with these offering virtually like-for-like live exchange rates - normally, small exchange fees do apply. However, these e-money accounts or prepaid cards may not be as competitive on ATM fees. For example, with the Wise card, you get two free overseas withdrawals per month, and the amount you can withdraw is also capped depending on the currency. After this, fees apply. With Currensea, there are no overseas withdrawal fees, but a markup on exchange rates of 1 to 2% applies (depending on how much you withdraw in a month and your Currensea pricing plan).

5. Hassle-free opening

Outside of the financial benefits, digital banks can also make it much simpler to open a bank account online. Most online-only bank accounts allow people to apply online, usually by submitting a photo of their ID, and then proceeding to a quick turnaround on the application decision, usually minutes. This ties in with their focus on ease-of–use. When thinking about opening an account with a high street bank, if you are completely new to them, it usually requires a trip to your local branch. They usually require photo ID and a second form of ID for address purposes, a less desirable option that can be inconvenient if you don’t have the time.

What is the difference between online and high street bank accounts?

An online-only bank account doesn’t have a physical branch that you can visit like a traditional high street bank. Instead, you can only manage your account through online banking, which you can access using a computer or a dedicated banking app on your phone. Indeed, many banks such as Monzo and Starling now operate on an app-only system. For some not being able to see someone face to face, or not being able to call a branch is an inconvenience.

Fully UK-regulated online banks have the same Financial Services Compensation Scheme (FSCS) protection as high street banks. But, it's worth noting that not all online current accounts are covered by the FSCS. This includes products and services like e-money accounts, wallets and prepaid cards.

If you are in the process of deciding to open an online bank account, it really does depend on your preferences and financial needs. Online-only banks may be more convenient and cost-effective for those who prefer to do their banking online, while high street banks may be a better choice for those who value in-person customer service and a bank which offers, for now, a wider range of financial products. If you’re still unsure, take a look at our guide on why people are switching to challenger banks, to gain even more insight to the benefits of the digital banking world.

In summary

Comparing bank accounts can be tricky, so we would start by weighing up the benefits they can offer, and then picking the ones most suited to your lifestyle. If you’ve found this article useful, please share with your friends, family and followers using the social media buttons below.