Choosing a Bank Account: Traditional vs Challenger Bank

Did you know that you don’t have to bank with a traditional high street bank? Here we explain the difference between a high street and a challenger bank.

Traditional Banks

All of the UK’s nine main banks and building societies offer specialist student accounts; HSBC, Barclays, RBS, Santander, Bank of Ireland, Allied Irish Bank, Danske, Lloyds and Nationwide. You need to be 18 years or over to open a student account. You will need to have applied for university and/or student finance and it’s likely you will need to provide evidence of this when opening the account.

Student accounts are simply bank accounts made for those in higher education. They let you pay money in and out, and offer additional benefits such as an interest free overdrafts and other incentives. These could include things like a Tastercard, Totum cards, or discount on the price of railcards. Which? has a great guide which covers these incentives in more detail, with the benefits of both traditional and challenger banks.

Once you graduate, your account will automatically become a graduate account, so you can continue banking to your hearts content! This may be a reassurance if you are worrying about your future after graduation.

Watch this video from the Money Advice Service for information on how to open a bank account:

Challenger Banks

As well as traditional banks, the market is now seeing more and more challenger banks opening. Their aim is to ‘challenge’ the traditional banks. They are digital only banks, so do not have any branches. You bank with them via apps and their website. App-based banks are also often called online-only banks, digital banks, mobile banks or challenger banks. These new banking products, which range from current accounts to cryptocurrencies, exist purely on your smartphone.

Challenger banks such as Chase, Starling and Monzo don’t have specific student accounts, but they have good budgeting tools – which are ideal for students. However, these accounts don’t have free overdrafts so you need to consider if this is something you really need and will use. Most of these challenger banks have apps which give you instant notifications when you spend and can organise your spending by category, such as food, bills, entertainment and travel. Monzo and Starling also offer no fees for overseas spending which is handy if you fancy travelling in the summer.

Most UK challenger banks have an 18-year age restriction, but some do allow you to open an account from 16. However, you won’t be able to access their overdraft facilities.

Challenger banks offer:

• Accessible Apps that work with inbuilt device accessibility software.
• Instant notifications, that are sent to your phones within seconds of making a payment.
• Useful budgeting tool apps can show detailed monthly spending reports.
• Free currency exchange with no fees abroad.

You can find a list of UK challenger banks by clicking here.

Compare Banks

Whether you choose a traditional or challenger bank, it’s important to compare banks and accounts to find out what is best for you and your circumstance. USwitch and Money Saving Expert are great places to start for comparing your choices to see what works best for you. OrCompare the Market also provides different deals and prices for choosing the best student bank accounts. To compare challenger banks, why not check out Save the Students handy guide to learn more about app based banks.

When comparing banks, whether traditional or challenger, you may have to consider a variety of factors. These can include their overdraft policies, accessibility and more. To learn more, why not check out our guide to overdrafts, or learn everything you need to know about banking and accessibility.

Start Organising Your Spending Now!

Download our helpful student budget worksheet