If you're a student looking for your first bank account, you may have heard of challenger banks. Here's what they can offer to improve your financial life as a student.
Revolut, Monzo, Starling… they’ve been around for a while and loads of young people are opening accounts with them. Should you do the same? What’s so special about them? Our guide looks at how digital banks can boost your uni life.
Compare digital bank and e-money accounts for students
To make comparing even easier we came up with the Finder Score. Fees, features and customer service across 20+ of the most popular banks are all weighted and scaled to produce a score out of 10. The higher the score the better the account – simple.
Challengers are banks or banking apps that were born with the aim of “challenging” the big, traditional high street banks, by offering better deals, bureaucracy-free accounts and better online banking services.
Challenger banks don’t usually offer dedicated student accounts, but their basic current account options come with a series of features that make quite a lot of sense for the typical student who doesn’t know much about banking and whose monthly budget is a bit stretched.
In general, young people seem to like digital banking. They like it a lot, actually.
There’s a bunch of different reasons for this, including:
Accounts are fast to set up. Opening a bank account takes a few minutes online and you’ll receive the card within a few days.
It’s mobile-friendly. Digital banks come with an app that usually looks good, works well and does cool stuff. For example, most show you data about where and how you spend most of your money. Also, most apps give instant notifications when you use your card to help you keep track of what you spend.
Free to join and low fees. Most challenger banks offer a free basic account and in most cases won’t charge you for basic banking services such as ATM withdrawals, bank transfers and card payments.
It can help you save money. When you’re a student, budgeting is an art form – how many gin and tonics can you afford if you still want to eat three decent meals a day? Digital banking apps often have features that can help you budget, by gathering and regrouping data on your spending habits and then presenting it in clear, colourful graphs.
Young brands. For many young people, traditional banks are the banks of their parents. Challenger banks have been able to establish themselves as cool brands. That kind of feeling, although subconscious, often plays a part when you’re choosing a product.
What's in a name: challengers, challenger banks or digital banking apps?
These three terms are often used as synonyms and usually refer to the same group of companies. However, there are some distinctions to make:
Challengers. It’s quite a general word that refers to the idea that these companies are “challenging” traditional banks and their power in the market.
Challenger banks. Not all challengers and digital banking apps are entitled to call themselves a “bank”, only those with a full banking licence can, such as Monzo and Starling.
Digital banking (apps). Challenger banks are usually digital-only, but there are exceptions – Metro Bank is a challenger with a physical branch presence, for example. The term “digital banking apps” also encompasses budgeting apps that do not actually hold any funds, but use Open Banking to connect to your current account and help you manage your finances.
Want to learn more? Read our full reviews on these digital banking brands.
Monzo One of the first and most famous digital banking apps. You need no proof of address to open an account. It offers a huge range of budgeting tools, and you’ll get fantastic rates on overseas spending.
Starling: A digital banking app with savings goals, a marketplace and is accessible via app and desktop. You can spend or withdraw money anywhere overseas with no fees. No proof of address is required to open an account.
Revolut: A digital banking app with many features including budgeting tools, buying crypto, low-free spending abroad and rounding up spare change.
Zempler: A digital account that is great for improving your credit score.
Monese: A digital banking app that lets you open an account really easily.
What do you get if you open an account with a challenger bank?
As we said, at the very least you should get a free account, a widely accepted card and a slick mobile app.
That’s all very nice and techy, but you’ll be wondering about other rewards and advantages you can obtain with challenger banks. Traditional banks are usually better at offering customers perks or incentives – especially for opening a student account – but challenger banks also have advantages, such as:
Overdrafts. Not all challengers offer overdraft facilities, but those that do allow you to apply for one from your banking app in a few seconds.
Free transactions abroad. Challengers are excellent for travellers and international students, as many don’t charge you for using your card overseas and some even allow free ATM withdrawals outside the UK.
Opening a bank account as an international student in the UK
Many traditional banks only allow you to apply for a student account if you have at least three years of address history in the UK, so if you’re an international student, you’re locked out.
In that case, becoming the customer of a challenger bank can be a nice and tidy solution. You need to be a UK resident but you usually don’t need a proof of address to apply and you can also use your card abroad without any extra fees, which is handy if you’re planning to spend some time back home during the holidays. Learn more about student bank accounts for international students.
Traditional vs challenger banks
If you only look at perks and rewards, in some cases traditional banks beat challenger banks. With traditional banks, students can often get discounts on cinema tickets and at retailers, as well cashback options or free railcards that make your train trips cheaper. It’s difficult for challengers to match those kind of offers with their free accounts.
Moreover, traditional banks usually offer larger overdrafts, which are interest-free for students. Compare traditional student accounts here.
Pros and cons of challenger banks for students
Pros
Easy and fast to set up.
Slick mobile apps and instant notifications.
Budgeting features that can help you save more.
Free or low-fee transactions abroad.
Cons
No physical branches.
Fewer perks and rewards.
Smaller overdrafts (or none at all).
Bottom line
Digital challengers have been disrupting the UK banking industry over the past few years, with their sophisticated mobile apps, budgeting features and low-cost overseas card use. They are a good option for anyone – not just a student – who wants a free digital bank account. But as a student, there are other things to consider; if you are after an incentive (such as a free railcard or cash bonus) for opening an account, or you need a large interest-free overdraft to help fund your time at uni, then these are areas where a student account at a traditional high street bank might win out.
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
Valentina Cipriani was a writer at Finder UK. She wrote news, features and guides about banking and credit cards, helping people to improve their financial lives. She holds an MA in International Journalism. See full bio
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