Monzo review: Should you switch to the app-based bank?

Since its launch in 2015, app-based bank, Monzo, has acquired more than 750,000 customers. The reason for its rapid growth is that it offers a number of features missing from most high-street banks.

Indeed, “The bank of the future” – as Monzo describes itself – offers a range of sophisticated budgeting tools directly in the mobile app, along with innovative payment and saving features. Best of all, though, it lets you use your debit card abroad at no extra cost and also allows for up to £200 of fee-free cash withdrawals overseas every 30 days with a 3% charge for withdrawals after that.

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But how good really is Monzo and can a bank with no branches ever truly replace your everyday current account? Read on to find out.

Monzo review: What you need to know

It might not have any high-street branches, but Monzo is a registered UK bank, so your funds are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000. This means your money is as safe as it is in any other bank.

A Monzo current account is, therefore, just like any regular current account. This means you can not only have your salary paid into it but also set up Direct Debits and standing orders, and make one-off bank transfers. You also get a Mastercard that’s usable in the same way as any other debit card. As far as limits are concerned, you can withdraw up to £400 from ATMs every 24 hours, and spend up to £10,000 a day on your card.

If you’re eligible, Monzo offers overdrafts and its “Pots” feature lets you easily put money aside so you don’t spend it. One shortcoming is that Monzo currently offers no traditional savings accounts, where you can make interest on your funds. Other pitfalls include the fact you can’t deposit cash and to pay in cheques you need to send them away in the post. Also, because there are no branches, support is via a phone, email or live chat.

To set up an account, all you need to do is install the Monzo app on your phone and follow the instructions on screen. You’ll need your photo ID and will also have to record a short video to confirm your identity. Once set up, you can transfer funds to your Monzo via bank transfer or using a debit or credit card. 

Monzo review: Current account and savings tools

Until October last year, Monzo offered only a prepaid debit card. Now, however, its Beta service has been phased out and all Monzo users have full current accounts. Apart from the obvious – that you have a sort code and account number – this means you can have your salary paid directly into your Monzo account, set up standing orders and Direct Debits, and make direct bank transfers from your Monzo account. You can also use a Monzo current account with both Android Pay and Apple Pay.

Another of Monzo’s innovative features, which traditional high-street bank don’t offer, is its “Pots” function. These operate like savings accounts, protecting funds placed within them from being spent until you transfer them back to your main pool of money in the current account.

Unlike savings accounts, which can be a bore to set up and close down, you can add and remove pots as you please, name them whatever you like and quickly and easily add and remove money. Crucially, this gives you total control of how and when you save.

You can simply add money manually, to a dedicated holiday fund, for example. Alternatively, by creating a pot called “Coin Jar”, Monzo will automatically round up every purchase over £1 to the nearest pound, and add the difference to your savings. One significant drawback to Pots (for now, at least) is that you can’t earn interest like you would in a real savings account. However, Monzo tells us that it’s looking at ways to let you “do whatever you’d see fit with your money”, so don’t rule it out in the future.

If you need an overdraft, setting one up is as simple as opening the Accounts page and then tapping “Set up overdraft”. Monzo offers a free allowance up to £20, but if you’re overdrawn by between £20 and £1,000, then the rules are simple – you’ll pay £0.50 for every day that you’re in the red. Regardless of how much you overspend, this means you’ll pay a maximum of £15.50 in fees a month.

Monzo’s transparency about fees is undoubtedly one of the things that makes its current account so appealing. In fact, it’s the total lack of fees when using your debit card abroad, that separates Monzo from most of its traditional rivals. Overseas, you can use your Monzo debit card in restaurants, shops and online and you’ll only pay the exchange rate; there’s no additional commission.

Better still, the app notifies you instantly how much you’ve spent in your home currency, making it much easier to keep tabs on how much of your holiday budget you’ve spent. Overseas cash withdrawals were once free too (in Monzo’s early days), but now you can only take out up to £200 every 30 days, after which you’ll pay a 3% charge on withdrawals.

Monzo review: Budgeting tools

Another area in which Monzo differs from most high-street banks is its advanced budgeting tools and the sophisticated spending breakdown it provides. On the homepage of the Monzo App, you’ll see a timeline of your purchases as you would in any other banking app.

Tap Summary, however, and the app will give you a detailed analysis of not only how much you have left, but whether or not you’re likely to have funds remaining at the end of the month, and where your money has been going, sorted by categories.

So how does this work? Whenever you make a purchase, Monzo automatically assigns it to a category (you can change this manually) and over time it uses this to build a picture of what you’re spending money on, whether that’s Eating Out or Shopping and all without you having to do a thing. To prevent over complication, Monzo doesn’t let you create your own categories, but you can add tags to your purchases for more granular tracking. Add the tag #clothes for every new item of clothing you buy, for example, and you can then view a summary of all your clothes shopping at any time by searching the tag from the home screen.

Monzo also lets you set spending targets. Tap the Budgets icon on the Summary page, and you can set budgets for your overall spending as well as each individual category. After you’ve set a budget for a category, you can easily check how much you’ve spent, and how much more you have remaining.

Monzo review: Payment methods

And when it comes to payment methods, Monzo has some innovative tools that put its high-street rivals to shame. Want someone to send you money? When you set up your current account, Monzo generates a unique monzo.me URL you can share with anyone, allowing them to pay you using any debit or credit card. Have a specific bill in mind? Select the transaction from the home page and you’ll find the option to “Split cost using Monzo.me”.

If your friends have Monzo, paying them is as easy as tapping a few buttons. Contacts with the app automatically appear on the Payments page, whether you’ve paid them before or not, and there’s also a handy ‘Nearby friends’ function you can use if you don’t have someone’s phone number.

Even when making regular bank transfers, paying someone for the first time feels much quicker than other banking apps, where you often need a card reader for two-factor verification. Monzo’s simple PIN approval might not feel as secure, but it’s much more convenient for small, everyday payments.

And whenever you spend or receive money with Monzo, you’ll receive a notification on your phone instantly, which helps you to keep on top of your finances in an age where people use cash less and less. By tapping a transaction from the app’s homepage, you can also easily see a complete history of your transactions with that person or business. This is incredibly handy for both tracking what you’re spending on your vices but also seeing who still owes who what.

The Monzo Mastercard works just like any other debit card. You can use it to withdraw cash at most UK cash points without paying any fees and it has contactless support for making quick payments under £30.

Should you misplace your coral-coloured card, then Monzo has a handy feature that lets you freeze it temporarily. In this instance, you can also log in to the basic Monzo web app (web.monzo.com) to check your account balance and recent transactions. If it doesn’t turn up, you can order a replacement directly from the app with a couple of taps.

It’s worth noting that the Monzo app isn’t PIN protected by default, meaning anyone who gets hold of your phone can technically open it. While you do  need to enter a PIN to make any payments, this can still feel quite jarring for a banking app. Thankfully, it’s easily resolved by enabling the option to “Use fingerprint to unlock app”, and if you’re particularly concerned about anyone else seeing your transactions, you can also opt to “Hide Monzo from recent apps”, which stops the app showing in recent apps and also disables screenshots. 

Monzo review: Verdict

Monzo has carved out a niche in what has been historically a highly conservative sector and that niche is offering a range of brand new, innovative features in a mobile banking app.

The range of tools Monzo places at your fingertips for budgeting and putting money aside so you can’t spend it, is simply superb. The real killer blow, as far as its high-street competitors are concerned, though, is that it lets you use your debit card abroad without paying fees. If you’re the sort of person who travels a lot, you’ll quickly find Monzo indispensable.

There are some drawbacks that mean Monzo isn’t for everyone. Although Monzo is forever adding new features, the fact that it currently lacks traditional savings accounts and the option to deposit cash will be seen as insurmountable problems by some.

However, there’s nothing to say that your Monzo account can’t exist alongside another current account or savings account. In fact, for now, that’s exactly how I’d recommend using it. Set up a Monzo current account and deposit some money in it, then use it for your everyday spending and see how you get on. If you love it, it might well replace your high-street bank altogether. At worst, it makes an excellent card to take on holiday.