Interest on Monzo accounts?


#1

I see that Nationwide currently offers 5% on current account balances.

I’d be interested to know whether Monzo has any plans to do anything similar going forwards.


(Danny) #2

(Peter G) #3

The topic of interest was raised during a recent Q&A with @tom, Monzo’s Chief Exec:

Granted this was about savings rather than the current account, but I think it shows the general thinking.


#4

Would this not mean that Monzo account holders would earn less interest than they would if going into other bank savings accounts directly, given that Monzo would have an agency role and would presumably need to take a commission turn to make profit on such arrangements?

On savings accounts generally it baffles me why anyone would keep cash in a savings account when they could easily get 5% tax free, but that’s a story for another day.


#5

If you are referring to the Nationwide Flexdirect current account, this is not tax free?


#6

That’s true. However, most people will earn a modest amount of interest tax free. For the rest of us an accumulation bond or a SIPP will do just as well.


#7

Highest I’ve seen on an ISA in a while is ~1%, unless you have a link to a different one, or different type of tax free account?


#8

There’s no shortage of bond unit trusts and the like paying 5%. You can ISA them but for most people there’s no need as the accumulation units are tax free.


#9

Could you link to an example? This is interesting.


(Peter G) #10

I don’t know - you’d need to ask Tom what he meant, although there’s a bit here on aspirations to be a “financial control centre”.

(I think - and this is my own take rather than anything from Monzo - this means that Monzo would become a little like Emma, Yolt or other aggregators, showing different accounts in the one app. It’d probably allow users to transparently and automatically move money between different providers - maybe via a set of configurable rules. The current account is just a way into that future product and I think I’ve seen references to Monzo maybe not even being a bank in a decade (disclaimer - this might not be correct, I’ll have a look for a reference tomorrow maybe). But your point about making a profit is an excellent point, and your question about commission is important: will Monzo become a curated walled-garden or something open? I think the plan is to be open to external accounts but that Monzo would make money from product referrals (such as moving electricity supplier) and overdrafts - but those revenue streams are only just being tested in the wild, so to speak, and may or may not hold up in the longer term).

Given that it’s just ticked past midnight can you share your best tips and tricks? :wink:


#11

No problem, a couple of lowish risk examples of regulated bond funds are:
Ashmore Emerging Market Sovereign Debt Yield 4.72%
TwentyFour Dynamic Bond Yield 4.53%
As they are accumulation units there is no tax to pay on the income.
There are many similar.


(Peter G) #12

Very interesting, thanks!

(I’m off to google “accumulation units”!)


#13

Bear in mind that bond funds can go down as well as up, but since cash in the bank goes down at a guaranteed 3% a year due to inflation I’d say it’s a risk worth taking.


#14

or you can get returns or around 7 or 8% with WiseAlpha. I think either Monzo or Starling was planning to add them to their Marketplace?


(Hugh Wells) #15

Maybe I’m a bit too cautious, but I have a Loyalty Cash ISA with Nationwide - I’ve had the account all my 19 years so it gets a good rate of interest :slight_smile:


(Kenneth C Lawrence) #16

Savings accounts aside, as I know Monzo are looking to build the best current account first, I’m waiting for any interest on this.
Starling currently offer 0.25/0.5% depending on balance. And imo seems the only reason I may switch (everything else so far I much prefer Monzo though hehe :grin:)


(Jamie 🏳️‍🌈) #17

The first £1000 interest earned on any account (for a basic rate taxpayer) is tax free. You don’t have to put your money into tax-free savings vehicles (such as ISAs) to benefit these days.


(knows someone who knows Tom quite well) #18

Depends how much you earn.

Also, an ISA is always tax free, whereas you can exceed the £1k tax free interest limit with sufficient savjngs.

So long term, the ISA is the more sensible route.


(knows someone who knows Tom quite well) #19

I think you’ll find that the accumulation is considered to be a ‘notional distribution’ and is treated for income tax the same as income units.

http://monevator.com/income-tax-on-accumulation-unit/


( related to Monzo CEO, Investor in Monzo ) #20

and thats a lot of tax on £15 billion :slight_smile: