Your Money: Can you beat fees and bank on a digital-only current account?
Depending on your needs, the new breed of online offerings accessed through an app could be good for your wallet, writes John Cradden
The last time there was any excitement in the current account market was during the boom, when the banks fell over themselves to introduce fee-free banking to win new customers.
Fee-free banking still exists, but it's a shadow of its former self. The qualification rules have been tightened up to the point where you could argue it no longer exists in any meaningful sense.
Indeed, the final nail in the coffin of fee-free banking from traditional banks has been hammered in over the last few weeks. Permanent TSB now requires customers to keep a balance of €2,500 a month if they want to avoid paying quarterly maintenance fee of €18.
The other pillar banks take a similar approach, with AIB also asking you to keep a balance of €2,500 to avoid various transaction fees and a €4.50 quarterly maintenance fee. Ulster Bank now has a threshold of €3,000 to avoid similar transaction charges, but you can't avoid the €2 monthly maintenance fee. Ditto for Bank of Ireland: its threshold is €3,000 to avoid transaction charges, but you will still have to pay a quarterly maintenance fee of €5 no matter what.
But the good news is that the market is now being shaken up by the arrival of online-only bank accounts from fintech firms, namely N26 and Revolut. Furthermore, non-traditional bank institutions like An Post are also making a determined play for the market with new current accounts, while KBC continues to engage in high-profile advertising and marketing for its digital-only offerings.
So how do they work, are they a better deal, and can you safely switch completely to these online accounts for all banking needs without ditching your high street bank account?
The approach to marketing of the two fintech 'disrupter' banks differs. German firm N26 has been running a big billboard-type advertising campaig and has two million customers across Europe, but doesn't provide country-by-country breakdowns.
London-based Revolut has tended to go direct to users by popping up in tech company campuses, co-working spaces and other large employers. So far, it looks to have made the bigger impact on the Irish market, claiming to have more than 200,000 customers. It now reportedly plans to establish a physical presence here but after a tough week last week - that saw the departure of its CFO and other issues - it remains to be seen if it can sustain its heretofore upward trajectory. Both banks have European licences, meaning they are backed up to €100,000 under the European Deposit Insurance Scheme. Revolut secured its own licence in recent months, with plans to offer personal loans of €15,000 at what it describes as low-interest rates.
But for the moment their appeal, particularly to younger customers, centres around their mobile apps. N26's app supports both Google and Apple Pay (while Revolut only supports Google), and allows you to open a bank account online in just minutes.
With both firms, there's no monthly fee and all day-to-day transactions are free, but with N26 you are only allowed five free ATM withdrawals a month. After that, a stiff €2 charge applies to every withdrawal.
Although you can withdraw up to €200 a month from ATMs without fees with Revolut, it's 2pc per transaction after that. The pre-paid debit card costs €6.
Both accounts also allow you to temporarily freeze your card within the app - so if you think you've lost your card but then happen to find it the next day, you're OK.
Revolut has a facility called 'Vaults', which are simple savings accounts you can set up on your phone immediately, lodging either a specific amount each week/month, or letting it 'roll up' your spare change on everyday spending. It also allows you to send or request money from anybody in your phonebook using the app - great for nights out so you don't get stuck with the taxi bill.
"The accounts tend to be more popular among the younger generation for obvious reasons but are also popular with people who travel a lot," said Daragh Cassidy of price comparison site Bonkers.ie.
"This is because N26 and Revolut charge no foreign exchange fees for card payments, so if you use your card in the UK or the States you won't be charged the 1.5pc to 3pc foreign exchange transaction fee that all the other banks charge.
With Revolut, only the first €5,000 of foreign spending a month is free - then there's a 0.5pc fee but this should be more than enough for the vast majority of travellers." In addition, N26's 1.7pc fee for withdrawing cash from a non-euro ATM is well below that of most of the traditional banks, which can be up to 5pc or more.
An Post has been promoting its Smart current account since 2017, but seems more expensive in terms of fees and charges.
"To me An Post has nowhere near the same appeal as N26 or Revolut - it doesn't support either Apple or Google Pay and you're charged a hefty €5 monthly fee as well as 60 cent every time you withdraw cash from an ATM," said Cassidy of Bonkers.ie.
On the plus side, all other day-to-day transactions are free and customers have the chance to offset these costs by earning money back by using their An Post debit card to make purchases in a variety of partner businesses, such as 5pc back on any Lidl shop over €25, and 10pc off SSE Airtricity bills when customers pay by direct debit.
"There are ways to earn cashback by spending with select retail partners but my mantra is that you shouldn't have to spend money to save money."
KBC is the only bank in Ireland that offers payments from all the top tech companies: Apple, Google, Fitbit and Garmin Pay. But to get fee-free day-to-day banking, you'll still have to lodge €2,500 a month.
But the other burning question is: can you survive using the digital-only accounts on their own for all your banking?
The level of switching in the current account market is still at less than 1pc and although the numbers opening digital-only accounts continues to grow, the anecdotal evidence is that people are not fully switching their accounts, according to Cassidy. "In other words they're opening up a second account, often out of curiosity, but are unwilling to fully close their main bank account as they're afraid N26 or Revolut won't satisfy all their day-to-day banking needs. This may have been true a few years ago but not anymore."
When you open an account with N26 or Revolut, you will get an IBAN number, which allows you to lodge in your salary and set up direct debits and standing orders just like with any other Irish bank account.
Of course, you're stuck if you still receive payments of any kind in cheques or want to lodge coins into your account. If this is you, you may have to maintain a branch account.
You won't be able to get a mortgage with the fintech firms, but you should be able to check out personal loans, overdraft and credit card offerings in the not too distant future.
Price comparison website that compares current accounts, among other banking services.
Website of the Competition and Consumer Protection Commission includes a current account product comparison facility.
Consumer information website that includes comparisons of current account charges and fees.
Sunday Indo Business