Welcome to the new world of app-based banking. There’s been an explosion in recent months of new companies offering a challenge to traditional financial services.
From prepaid cards to current accounts and mortgages, there’s little that this modern generation of providers isn’t tackling.
And now there’s a ‘chatbot’ app that’ll automatically work out what you can afford to save – and pay up to 5% interest too.
Chip is targeted at millennials who struggle to engage with existing savings options. Its interface is informal, with emojis and GIFs galore. The founders are aiming to take the thinking out of saving, making it an almost unconscious process.
How does it work?
Once you’ve downloaded the app (available on iOS and Android), you link it to your current account – currently 12 providers are supported – giving it read-only access so it can see your transactions.
It then uses its algorithms to analyse your spending and work out, every few days, how much you can afford to save, without impacting your day-to-day spending. The money normally amounts to around £10-25 and is transferred into your Chip savings account every four to seven days, where it earns between 1% and 5% interest, depending on how many friends you’ve referred to the app.
You can choose to move money into your Chip account manually as well, if you have an extra flush-week or two.
How much can I save?
There’s a daily cap of £100, but Chip has told us that it’s keen for people not to ‘game the system’ and move that much across every day. It’s already reduced the daily max from £150, and may impose further restrictions.
How does the interest work?
You start with a base interest rate of 1%. Then, every time you refer a friend who signs up with your code and connects their current account to the app, you get a 1% boost for a year, up to a maximum of 5%.
After a year, you can refer more friends to maintain the boosted interest rate.
Interest is calculated on a weekly basis, and is paid quarterly. If you were to withdraw your cash before the interest was paid, you’d lose it, so bear that in mind when thinking about managing your money.
How much could I earn?
We’ve worked out how much interest you’d earn in a year based on deposits from £10/week all the way up to the maximum £100/day, for different interest rates:
Will these high interest rates last?
In the current low-interest environment, the potential to earn 5% on your savings is attractive. Chip is currently funded by venture capital, and the founders have told us they’re focusing on attracting customers for now. The aim in future is to offer new services that’ll make money, but it remains to be seen if Chip will still be offering such generous rates a year from now.
Is my money safe?
Chip is an electronic money institution, regulated by the Financial Conduct Authority through its agency status with Prepaid Financial Services. Any money you save with it is held in a Barclays instant access savings account. This means that if Chip were to go bust, you’d be able to recover your money from Barclays.
However, if Barclays were to go under, your money isn’t protected by the Financial Services Compensation Scheme (FSCS), so you would lose your cash. Chip has told us that it’s looking to get FSCS protection in 2017 but it’s up to you whether or not you’re happy to take the risk until then.
What’s it like to use?
I’ve been using the app for a few weeks now, and have generally found it easy to use and understand. I’m a fan of the casual style, but if you’re not a fan of GIFs and emojis, it could grate on you.
Automatic saves can be cancelled before they’re processed, and it’s easy to tell the app to save more or less. It’s also simple to manually save more, though note that any manual save you make restarts the timing on the next autosave, so you could be waiting up to another week before it saves more. The main niggle I’ve had is with the speed of saves – they can be pending for a few days before they’re actually added to your account.
I’ve found the support very helpful, getting quick replies from members of the team whenever I’ve had questions, though it should be noted that there’s a fairly small user base at the moment of around 1,500 people, so it will be interesting to see how Chip’ll cope with larger volumes of users.
What other app-based products are out there?
It’s not just Chip that’s vying for a slice of the app-based action. Atom Bank launched earlier this year and has remained steadily in our best buys for fixed-rate savings since October. It’s just branched out into mortgages and hopes to offer easy access savings and current accounts in future.
Other names in the fray include Monzo, currently offering a fee-free prepaid card but looking to launch a current account in the New Year, as well as Starling and Tandem.
On the savings front, newbies Plum, Folio and Cleo are also trying to make saving money easier. And HSBC has partnered with budgeting app Pariti to trial a new app, SmartSave, which allows you to set rules to help boost your saving habits. There are other new names cropping up all the time, so we’ll be watching out to see what the next wave offers.
Can I get better returns on my savings?
While 5% is a very attractive rate, there are hoops to go through to get it and it could potentially last just a year. There are other options to boost your returns if you don’t like the sound of an app-based option. High interest current accounts, though several have recently cut rates, still offer up to 5% on small amounts of cash, and bank-linked regular savings are another way to earn up to 5%.