App-based banking

What is app-based banking?

App-based banking is basically what it says on the tin: a way to bank using an app. Unsurprisingly, most (if not all) of these companies are purely online or app-based.

That said, most have in-app customer support, with dedicated teams on hand to offer assistance if you've any questions or issues. Some even work in Facebook Messenger, so you can talk to someone about your banking in between chatting to friends.

All apps featured in this guide are free to download – though some have costs associated with running them, which we clearly explain in our best buys below.

If you're after the top bank accounts in terms of service, overdraft facilities, linked savings accounts or switching bonuses, see Best Bank Accounts.

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The apps can help with budgeting and tracking spending

Although these apps aren't solely meant for budgeting, a lot of the ones we feature in this guide can also help with keeping your finances in check.

Many give real-time notifications when you spend or save, something traditional banks don't do – so for example, if you bought something for £5 in Boots, you'd get an instant pop-up on your phone telling you what you've spent.

Another feature they have is to give you insights into your spending habits. This means you'll easily be able to see how much you spend in one particular shop each month (coffee addicts beware!), or more generally how much you spend on entertainment or travel.

This should make it easier to budget and keep track of your money, allowing you to cut the cloth where needed.

Your money's not always protected in the same way as a traditional bank

Before we get into what these apps do, let's talk safety. When it comes to your finances, you want to be sure your money's safe – so it's important to understand how your money's protected. UK-regulated banks such as Barclays and Santander have the full £85,000 Financial Services Compensation Scheme (FSCS) protection (see more on this in our Savings Safety guide).

Some of the apps below also have FSCS coverage, but a few don't. Instead, many digital banking apps have an 'electronic money' licence. This means they have to hold your cash in a bank account ring-fenced from their operating cash – this is normally with a big bank such as Barclays or NatWest.

Should the digital bank go bust, assuming it's done things by the book, your money would be protected as it'd be in a separate account.

But there's an important caveat. If the bank or building society in which your money was ring-fenced went bust, your money may NOT be protected. This is because it's not counted as a deposit, in the way that cash in a savings account would be, and so it's not as clear-cut.

For providers in this guide, we tell you how your money's protected – it's up to you whether you want to take the risk of a big bank that's holding your money going under.

The bank accounts are cool and high-tech BUT you can often get better rewards elsewhere

One thing that many financial technology firms – or fintechs – are trying to do is become fully fledged banks, offering an alternative to the main high-street players. Like their high-street counterparts, they offer debit cards, overdrafts, direct debits, standing orders and more. These challenger banks sell themselves on their high-tech, easy-to-use features, but it's still worth being aware of the old-school brands.

Many offer incentives of £100+ if you switch to them, or ongoing rewards such as in-credit interest or cashback on bills, something the challenger banks don't tend to do. For full options of these, see Best Bank Accounts.

Quick question

They can make saving automatic

Most of the apps are designed with you, the customer, in mind. Oodles of clever tech make managing your money as easy as pie.

In this guide we feature apps for saving, which have functions such as calculating how much you can afford to save each week and automatically sweeping money into a separate savings account – though you can always tell the app to save less if you're feeling the pinch, or move the money back into your current account if you need it.

This is intended to help you save without having to think about it, which should lead to higher savings building up.

See our Top Savings Accounts guide for the best on the market.

It's easy if you lose your card or forget your PIN

If you bank with a traditional provider and misplace your debit card or can't remember your PIN, it usually involves calling to cancel the card or waiting for a new PIN to be posted.

But new banks are making it easier to manage if you lose your card or have a lapse of memory – they tend to let you freeze or unfreeze your debit card with the touch of a button, and can give you PIN reminders in-app. You'll still need to enter a passcode or use 'touch ID' fingerprint recognition to get into the app, though; anyone can't just use your phone and steal your PIN.

So no more cancelling your card and then finding it seconds later at the bottom of your bag...

Want an overdraft? You'll need to pass a credit check

All providers featured in this guide perform what's called 'know your customer' (KYC) checks – this means they need to prove you are who you say you are when you apply, and will often ask for proof of identity and address. These ID checks appear on your credit file as a 'soft search', which other lenders can't see, unlike a 'hard search' (see Credit Scores for more).

If you're applying for an overdraft, which several new players offer, you'll be subject to a full credit check when you apply for it, to see if you're someone the provider would lend to, and if you did go into your overdraft, that you've a track record of repaying what you owe. This appears to lenders on your credit file, and many banks automatically do a full credit check when you apply for an account, whether you want an overdraft or not (exceptions are Starling Bank and Monzo below).

Banks will use this credit check, plus data on your application form, to decide whether to accept or reject you. Sign up to our Credit Club to see your free credit report and find out who's checked you, and what sort of search they've done.

Banks now have to let you give authorised apps access to your current account

Many apps, including the automatic savings apps below, require you to give them access to your existing online banking, so they can see your current account and credit card info. This is to give you insights into your spending habits, calculate how much you can afford to save, or combine multiple accounts in one place.

This sometimes means giving the app your login details so it can access your data. And because of a new regulation, snappily called 'the second Payment Services Directive' (PSD2), and reforms to the banking industry called Open Banking…

Banks now must share your banking data with authorised third parties if you've given permission.

By 'authorised' we mean those third parties, such as apps, which have special licences from the Financial Conduct Authority (FCA) or other European regulators – see our Open Banking explained guide for more. Banks may still share your info with unauthorised firms if they choose to. However, if you choose to do this with an unauthorised firm or app, you may be liable for any fraud affecting your bank account.

We note below if an app which connects to your bank account is authorised to provide these 'account information services' – if it's not yet, you need to decide whether or not you're happy to take on the extra risk before you apply.

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