Analysis shows that digital-only banking, with new-style banks such as Atom and Monzo, has grown for the second year in a row.
According to Finder.com, the personal finance comparison site, interest rates on instant-access digital accounts are, on average, more than double those available from high street banks.
“Money talks, and if better interest rates are offered, digital banks will continue to gain customers and deposits,” said Louise Bastock, money expert at Finder.
“This year’s study reveals that bagging a good return on savings is now the main motivation, rather than customers just treating digital banks, which are sometimes also known as ‘challenger banks’, as an easy-to-open secondary account,” she added.
In October, a bank ratings report by YouGov found that challenger banks also came out on top for customer satisfaction.
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The study found that the average instant-access interest rate at the largest four digital bank providers was 3.35%, compared with 1.52% at high street equivalents.
Despite the difference, nearly half (44%) of British banking customers said they were still reluctant to open a digital-only account. One in five of those said they were loyal to their high street bank and satisfied with the service.
The number of people using these digital accounts has soared in recent years. Last year, just over a third of customers had opened one, while in 2019, when the Finder study was first run, only 9% had a digital account.
Other reasons to go digital
While most people said they were choosing the digital accounts for the rates, there were other reasons for picking accounts run by challenger banks.
Some 12% of UK adults said they had opened or will open a digital-only account to get free transactions abroad, while 11% were using the account as a secondary account and felt that digital was the best option for this.
One in 10 Brits (10%) chose or intend to open a digital-only account for a better app experience than their usual bank.
Bastock said that even those who didn’t want to use a digital account as their main provider could benefit from perks such as better rates, cashback or improved technology.
“Loyalty to a single provider could be stopping millions of Brits from accessing popular perks and better rates.
“Considering you could potentially double your interest, loyal customers might want to consider moving some of their money into a digital bank account to take advantage of these perks, even if they don’t switch over completely,” she said.
