Should you apply for an online bank account?

If you’re among that bracket, we’ve put together this handy brief summing up the pros and cons – plus a few practical considerations – to help you decide whether to apply for an online bank account. We also discuss the difference between an online only bank account and internet banking generally.

• How popular is online banking?
• What are online only bank accounts?
• Who offers online bank accounts?
• Will my money be safe in an online account?
• How do I apply for an online bank account?
• How long will it take until my online account is up and running?
• So should I switch my main current account to an online only bank?

How popular is online banking?

According to research from Mastercard, Brits are now more likely to have a banking app than a social media app on their mobile phone. The trend is even more pronounced in the Boomer generation with half (52%) of over-65-year-olds in the UK having used banking apps during the pandemic, and six in ten (58%) finding they have been easier to navigate than they first thought. More interestingly, 100% of users said they will continue to use banking apps when life returns to a more normal footing.

What are online only bank accounts?

We have a whole other post dedicated to all you need to know about online only bank accounts, but it all boils down to the way users access their banking facilities. The clue is in the name – these are current accounts that don’t depend on a bricks-and-mortar high street presence and instead work solely through app platforms on phones and tablets.

We’re nearly all familiar with internet banking to check our balance and move money around, but online only bank accounts have added features and sleeker tech that help you know where and what you're spending, as well as supporting savings goals. That’s alongside traditional account features like bank cards, a direct debit facility, and access to the ATM network to get cash out. Customer service is covered off too – except you’ll normally have to chat in the app itself rather than seeing a human face-to-face at your local branch.

Who offers online bank accounts?

Most current accounts offer an online banking service, so it’s worth asking your existing bank what features you can get before switching to an entirely new provider.

However, it is the so-called challenger banks like Monzo and Starling that are the real driving force behind the online account revolution. These entirely app-based mobile banks let you manage your personal finances on your phone 24/7, no matter where in the world you are. Real-time spending notifications, budgeting tools and even bill splitting facilities give account holders a feeling of being in the financial driving seat like never before.

That’s not to say the banks of old aren’t catching up fast. Many high street names have popular apps too, with everyone from Halifax and Santander to Lloyds and NatWest now offering online accounts. 

Given that the digital banking field is getting so congested, comparing online accounts is crucial before settling on a provider. We’ve already mentioned some of the additional features like ring-fencing savings, but make sure you have the banking basics covered off first. Check for any monthly fees you may have to pay, for example, and see which providers offer an overdraft facility or how easy it is to deposit cash and cheques.

Some online current accounts will pay interest up to a certain amount on your balance, while others offer rewards on spending such as cashback or money off at certain shops. Meanwhile, add-ons are also worth investigating. Breakdown cover or mobile phone insurance sound good? In some instances you can sign up for a policy at the same time as opening your account.

Will my money be safe in an online account?

Many people worry that money held in online accounts will be lost if the company goes bust. For this reason it’s important you make sure your bank is Financial Conduct Authority (FCA) approved and covered by the Financial Services Compensation Scheme (FSCS), which protects up to £85,000 of your savings. In our introduction to online only accounts, we have further details on security, including how these banks try to stop hackers from getting their hands on your money.

However, when it comes to online banking safety, the buck doesn’t always stop with the bank – there’s plenty you can do yourself to reduce the chances of becoming a cybercrime victim. Start by regularly (by which we mean ‘daily’, where possible) checking activity in your account. It will help you spot fraudulent transactions as early as possible and potentially stop hackers from making off with even more of your money. Making sure you’re signed up for the security features offered by your bank can help here too – many promise text or email alerts when your balance falls below a certain amount. Others, like Barclays’ online account, will temporarily freeze your debit card if you can’t find it and set a daily limit for cash-machine withdrawals.

Another obvious pointer is to create a unique password for your online banking, store it in a safe place and change it regularly. Using the same login for all your online activity (including email, social media and shopping sites) makes you more vulnerable.

Finally, avoid doing your banking over public wifi wherever possible, and make sure you’re using the official banking apps, either downloaded from the bank’s website or from the iTunes or Google Play stores.

For more information about online security, check out our three-part series on how to protect your finances from scams. 

How do I apply for an online bank account?

As already mentioned, it’s crucial to do your research first and compare online only accounts on the market to find the best UK online banks suited to your needs. We’ve already suggested features and fees you might want to keep an eye out for, but consider the bank itself before diving in. Does it have a good reputation and, fundamentally, is it Financial Conduct Authority (FCA) approved? Make sure it’s covered by the Financial Services Compensation Scheme (FSCS) too, which protects the first £85,000 of your savings.

Next, ask yourself how much human interaction you like when dealing with your finances. Many customers love the convenience that online and mobile banking offers when it comes to something simple, such as checking a balance or making a bill payment, but still want the opportunity to chat to another human being for more complex transactions or if there’s a problem. Given the pandemic and the impact it has had on millions of people’s finances, for good or for bad, many financial analysts predict this demand is now likely to be heightened.

Once you’ve settled on the right account for you, the application process itself should be straightforward. The relevant forms should be signposted on the bank’s website, and can usually be filled in online in 5-10 minutes. You’ll need to provide some personal details – name, age (you must be over 18), and address – plus supporting documents as proof. Typically this includes a driving licence or passport to verify identity, and utility bills or bank statements as proof of address (you’ll need to be a UK resident). Some banks will ask you to record a short selfie video to show you’re really who you say you are, which is matched to the photo ID you upload.

You may also be asked for other information, including your job and income, but this isn’t a legal requirement. Rather it helps providers match new customers with the other products and services in their portfolio.  

How long will it take until my online account is up and running? 

That depends on whether you’re switching banks or setting up an online account from scratch. If it’s the first, using the Current Account Switch Service means you should be good to go within seven working days. If the latter, the timescale varies from provider to provider. Starling Bank, for example, says that once your account has been opened, you can order your new debit card from within the app and it should arrive in 3-5 business days. But if you want to start spending straight away, you can set up your card in your Apple Pay wallet or Google Pay before your physical one arrives in the post.

So should I switch my main current account to an online only bank?

The convenience of having your finances at your fingertips – whatever the time, wherever you are – is probably the biggest selling point of an online only bank account, as long as you’re reconciled to the fact that going entirely mobile means you lose (although not in all cases) the human touch of traditional banking in a high street branch. Bear in mind, however, that challenger banks are not behind when it comes to round-the-clock support, offering live chat options through an app or even human interaction via a phone line.

And no one can argue that the enhanced features being offered by both mobile banks and the big names in their wake aren’t handy. For wannabe savers, ring fencing pots of money is a great perk, while Lloyds’ online account lets you ‘Save the Change’ – basically, round your card payments up to the nearest pound to save as you spend.

For others, free cash withdrawals overseas might be the hook, or rewards and add-ons. If you open an online account with Santander, for example, switching on Retailer Offers in mobile banking will allow you to choose the offers you’re interested in and earn up to 15% cashback just by using your Santander card.

If you’re still nervous about making the switch or before applying for an online bank account, remember that many people open an online bank account alongside their existing accounts. You don’t have to choose one over another. Perhaps you fancy using your digital bank account for budgeting purposes, and simply transfer a monthly sum over from your existing account to keep a tighter rein on your spending.

The key message to draw from this is that the ‘right’ bank account is the one that makes it easier for you – and you alone – to manage your money. Whether that means going mobile, not moving, or trying out a mix of both, is ultimately up to you. The great thing is that Covid’s banking ‘tech-celaration’ will almost certainly work out in consumers’ favour by offering a broader choice of online current accounts (from both challenger and traditional banks), and ever-more sophisticated features within them.