Interest


(TWN) #1

Will the new Monzo account pay interest, if Monzo moves forward with virtual savings accounts it would mean I could close my savings accounts and move all my day to day accounts to one easy to use account.


(Ben Green) #2

In ideal world, I’d love it if they could.

There are three ways that I can see which would be financially sustainable:

  • Increase overdraft charges when they are introduced towards the end of next year, even further beyond what @paul is in the process of calculating.

Effectively, the interest towards our savings/current balances would be paid for by those already financially struggling. The same principal applies to interest-free credit cards and loans. Payments/levies to consumers are offset by payments from others. Others as well as myself, who doesn’t currently rely on an overdraft, I know morally disagree with this.

  • Invest more of our money that is held by Monzo across all accounts.

This would increase the risk that they’re may not be enough available for payments to the BoE and total consumer cash withdrawls.

  • Take higher risk towards investments with our money.

Same risk as above, plus the increased risk of Monzo becoming bankrupt.


Are there are any ways that I’m not seeing? I’d totally be willing to proven wrong and welcome an option that wouldn’t increase risk to Monzo’s financial stability or live off the backs of the less fortunate.


(TWN) #3

Any UK bank and I include Monzo in that has to give some incentive to savers if it is to compete with high street banks. For years we have had poor performing banks giving poor service and pooor performing Apps. Monzo needs to look at some form of incentive to savers and show the Banks that it means to compete seriously. Giving interest on hard earned money is not taking from the poor it how money works in the real world.


(Ben Green) #4

Since I’ve moved all the spending I can from First Direct to Monzo I’ve noticed that I am saving more per month because the new targets feature has made me aware that I need to spend less in certain areas and with the instant notifications and real-time balance updates.

I’ve also been able to begin saving more using services such as Chip and Squirrel. When the virtual savings accounts are launched, I expect they’ll behave in a similar fashion to Squirrel only better.

The fact I was able to get a near wholesale exchange rate and no foreign transaction fees for using my card abroad earlier this year is something that no other bank provides for free.

First Direct have been good with their quality of customer service and until I joined Monzo I thought they were the best. I think Monzo provide by far the best customer service now.

Many high street banks are cutting their interest rates to pretty much pointless amounts (0.05% for First Direct) that only the very rich will still be able to see any real benefit in continuing to use a savings account that pays interest. Granted there are restricted access ISAs or bonds available that pay higher rates, but they don’t help those in need of instant access to savings (e.g rainy day fund, or expected big purchase in less than 3 years).

There are other potential features on the horizon that would make Monzo more rewarding to account holders of other banks.

All of these factors put together means that I personally can earn more from Monzo and enjoy Monzo more than any other high street bank.

EDIT correction to misstated interest rate


(Gareth) #5

I doubt the very rich use saving accounts of 0.25% either :joy:

I can’t say I’ve ever seen interest as anything more than the icing on the cake. 2% of £2400 is £48 which is about a week bonus for 52 weeks saving up to £2.4k. Waiting a week more after saving for a year isn’t much, and so interest has never been an incentive for me to save. The idea of spending that £2400 however… :grin:

I wonder if you could calculate savings made into an equivalent interest rate…
e.g. You’ve saved £10 this month, that’s 5% eq. APR


(Ben Green) #6

Compared to the previous month/quarter/year’s spending, this would be a very nice little statistic to warrant a pat on the back.


(Colin Robinson) #7

First Direct are currently changing their rates - down to 0.05% in some cases!


#8

I think because money management will be much easier in Monzo I’ll save more than I would gain in interest elsewhere. The features are more of a draw than a pointless interest rate.

Having said that I’m also going to find one good savings account and transfer from Monzo regularly.


(Ben Green) #9

That’s the figure I was thinking of, thanks. I didn’t have my letter to hand so was going by a flawed memory.


( surohpotsirhC) #10

Once Monzo is my current account I expect I’ll be able to see significant changes in my spending. At present I can’t use Monzo 100% of the time.
As @garete said, interest rates are the icing on a cake. I’d much rather have a product that helped me save money. Whilst I’ve got a mortgage I’m not as interested in savings, my plan is to try and overpay my mortgage as much as possible and reduce it down. Unless I find a magical savings account then I’m going to save more money in the long term by reducing the length of my mortgage.
Of course, two children put quite a dent in any attempt to overpay the mortgage.


(TWN) #11

Ok let’s go over this again the point I am making is simple a good current account should have the ability to open saving buckets within the app to enable me and others to put all our Money in the Monzo account. In return Monzo pays interest on all the collective balance. Yes interest rates are low at the moment but will not always be this way (I remember getting 10% on a savings account back in the 80s) Monzo could set the rate as a tracker going up and down following the base rate. I believe Monzo could be the best thing that will happen in banking for years to come but it must be ready for the competition when it reacts.


( surohpotsirhC) #12

Sorry, went a bit off track.

In my head I had a bit where I mentioned that I would like to have interest on whatever money I’m setting aside for various reasons. Car Insurance, New Car, House Repairs etc.

That, for me, is my current savings. Money set aside for specific purposes. If it can earn interest then all the better.


(Ben Green) #13

What about making the savings accounts an instant access ISA?

I’m not entirely sure how ISAs work, but they obviously must be made tax exempt by HMRC. So while we wouldn’t be earning interest (at least not without going by my deliberately bad ideas posted earlier, because there are no good ideas so far), we would at least be able to put the money aside without paying any tax on the money held in those accounts.


(Andrew Schofield) #14

Maybe, although basic-rate tax payers can earn up to £1000 interest tax-free on savings anyway.


#15

I think you may be confusing the purpose of an ISA. Money put into a bank account is not further taxed. What IS taxed is the interest you receive on this money, as this is seen as income. An ISA means that interest is received in it’s entirety rather than 20%(?) of the interest received being taxed and going to HMRC.

Tax free savings are only as good as the interest rate given by the account.


(Gareth) #16

I’m a 90’s kid so ~5% has been the max average I’ve seen. The idea of a standard savings accounts having such a high percent (13.56% in 1990 according to one website) sounds like trouble to me.

As @Throwingspoon said, Monzo is more about management (and api), so imagine a saving portal/website/app which has a list/comparison of first/third party options to choose from and links built in so all accounts could be managed from one place, including your Monzo current account (possibly from within Monzo). Transfers could be dynamic, it would target your saving goal (e.g. lock for 3 years or basic saver), it could recommend and automate product changes etc; it could be either Monzo or a third-party that creates this - that’s the joy of APIs. But we’re a few years from that pipe dream.

I don’t think Monzo could be competitive offering interest themselves, they are a start-up bank (cynically I can see interest being a method of funding the services Monzo provide - I doubt overdrafts alone would cut it and investment funds are not ad infinite). They could make it easier to invest elsewhere and earn commission for referral. You would also benefit in smarter saving.

Or maybe Monzo will go traditional and offer interest in the future, only they know.


#18

This is a brilliant suggestion . Interest in the whole account would be fantastic


(Mike Thacker) #19

There’s discussion here comparing Monzo with high street banks, but I’d think comparison with other online banks is more appropriate. Atom offers 1.95% on savings tied up for a year (a bit more for longer periods).

If Monzo is to lend money (eg through overdrafts or mortgages) it needs savings beyond the small balances people keep in current accounts doesn’t it?

It would be good to know the Monzo model so we can decide if Monzo is just a place for day-to-day banking and, if we’re lucky enough to be able to save a bit more, that needs to go to another bank.


(MikeF) #20

It’s been stated often enough on here that Monzo aim to operate as a marketplace linking customers with products and savings accounts from other suppliers. With the coming of the Pots feature, we get a first glimpse of how these account will be realised in-app.

I think they’ve been faily clear about for months (search for ‘marketplace’ themed threads for the information).


(Mike Thacker) #21

OK. Now I know to search for ‘marketplace’ rather than ‘savings’ or ‘interest’ I can see the intention. Looking forward to Pots. Thanks Mike