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Why it can pay to save with app-only banks

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New app-only banks have made everyday banking slicker, but some have taken it a step further and made it more convenient to save.

Monzo and Starling, two of the best-known digital banks, both have a ‘savings pots’ function that allows you to allocate money from your main account to multiple savings sub-accounts.

You can give each pot a name (holiday fund, Christmas presents, new bike), a target, and even an image if you want.

The pots are instantly visible on your smartphone, but the money is kept totally separate from your everyday spending, so if you want to make a £250 purchase, but only have £200 in your main account, you’d need to transfer £50 from one of your pots.

At first glance, this feature may seem a bit gimmicky. After all, mainstream banks offer easy access accounts and many of them allow you to seamlessly move money in and out of them from your current account via an app.

But there are a couple of positives to using digital ‘savings pots’.

The first is the interest rate you can earn.

Monzo pays 1% on savings above £1,000 and up to £250,000, which is head and shoulders above the instant access rates offered by most mainstream banks and building societies. HSBC and Nationwide, for example, pay just 0.1%, while the very worst accounts from Darlington BS and Vernon BS pay a measly 0.05%.

It’s worth noting that to get 1%, you need a minimum balance of £1,000 and it also takes one working day for your money to be moved back into your Monzo account if you need it, so it’s not truly instant access.

If you don’t have £1,000, Monzo also offers normal pots, which have no minimum balance and cash in them is instantly accessible, but they don’t pay any interest.

Starling pays 0.5% on balances up to £2,000 and 0.25% on anything above that up to a maximum of £85,000. Your money is instantly accessible, and you can transfer it back to your everyday spending account if you need it.

While 0.5% isn’t a blow-your-lights-out rate, again it’s better than the rates on offer from most mainstream institutions.

The second positive is convenience. You can see all your money in one place and make changes quickly and easily.

This will be especially appealing to new savers or people who want to save a few pounds here or there.

It could also help you get into the habit of saving and encourage you to keep saving as you get nearer to your goals.

Starling has also just launched a round-up feature, making saving even easier.

When you spend on your Starling debit card the transaction value is rounded up to the nearest full pound, and the difference is added to a pot of your choice. For example if you spent £4.55 on your card, £0.45 would be added to your chosen pot. You receive a push notification telling you the amount that’s been rounded up.

Are they right for you?

Whether digital savings pots are right for you will depend on your motivation. If you’re after the best rate, you can do better elsewhere.

Marcus by Goldman Sachs pays the best easy access rate of 1.5% and you can open an account with just £1.

While Marcus doesn’t have an app, moving money to and from your current account is easy, although not as convenient as having all your accounts in one place.

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