What are challenger banks?

Challenger banks offer a fresh, digital-first alternative to high-street banking. From clever budgeting tools to quicker account setup, we break down what they are, how they work, and the key reasons you might choose one

Key takeaways

• Challenger banks offer fast, app-based banking with smart budgeting tools and modern features.

• They provide competitive perks like low fees, savings tools and quick account setup, but may lack branch access.

• Your money is generally safe as long as the bank has a full UK licence and FSCS protection.

What is a challenger bank?

A challenger bank is a newer, digital-focused bank that aims to compete with traditional high street banks. These banks typically operate online rather than through physical branches, offering modern, streamlined services and often lower costs. They’re designed to be more flexible, innovative, and customer-friendly, making banking simpler and more accessible.

What are the key features of challenger banks?

Challenger banks have several notable features, including:

• Mobile-first banking. Manage your entire account from an app with real-time updates and easy navigation

• Instant spending notifications. Get alerts the moment you make a transaction to help track spending

• Built-in budgeting tools. Use in-app categories, spending insights and limits to stay on top of your money

• Fee-free international spending. Many challengers offer low-cost or no-fee card payments abroad

• Faster account setup. Open an account in minutes using simple ID checks, all from your phone

• Innovative savings features. Tools like round-ups, savings pots and automated rules help boost your savings habits.

How are challenger banks different from traditional banks?

Challenger banks differ from traditional banks by offering a digital-first, streamlined approach to managing money.

Instead of relying on branches, they operate mainly through mobile apps, giving customers instant notifications, budgeting tools, faster account setup and real-time control over their finances.

With lower overheads than high-street banks, they can often provide competitive features such as fee-free spending abroad or higher-interest savings options.

Challenger banks focus on simplicity, transparency and user experience, while traditional banks may still prioritise in-person services and broader product ranges.

This makes challengers particularly appealing to customers who value convenience, speed and modern app-based banking.

What are the pros and cons of challenger banks?

There are advantages and disadvantages to using challengers banks, which are worth considering before you consider making a switch.

Pros

• Easy-to-use apps make managing money quick and convenient

• Instant notifications and budgeting tools help improve financial control

• Lower fees and competitive exchange rates can save you money

• Fast, hassle-free account setup gets you banking in minutes.

Cons

• Limited or no physical branches may not suit everyone

• Customer support can be slower or less comprehensive or personal than traditional banks

• Some accounts have limits on cash deposits or withdrawals

• Newer banks may offer fewer long-established financial products

Is my money safe with a challenger bank?

Yes, in most cases your money is just as safe with a challenger bank as it is with a traditional bank, as long as the challenger bank is fully licensed in the UK.

Most well-known UK challenger banks (such as Monzo and Starling) hold a full UK banking licence, which means eligible deposits are protected by the FSCS (Financial Services Compensation Scheme) up to £120,000 per person, per bank. On 1 December 2025 this limit was raised from £85,000. That means if the bank were to fail, the FSCS would reimburse you up to £120,000.

Some app-based finance brands operate under e-money licences instead of full banking licences. These don’t offer FSCS protection, but they must safeguard your money by holding it separately from their own funds.

To check if your money will be safe, see whether the provider has an FSCS-backed banking licence or an e-money licence before opening an account.

Who are the most popular UK challenger banks?

Some of the most popular UK challenger banks include:

• Monzo. A fast-growing, mobile-first bank known for its intuitive app, budgeting features, and community-driven ethos.

• Starling. A fully licensed digital bank that’s gained praise for its reliability, strong customer service, and full account functionality.

• Revolut. A global fintech powerhouse, now with a UK banking licence, popular for international spending, currency exchange, and flexible finance tools.

• Atom. The UK’s first app-only bank with no physical branches, focused on savings and mortgages via a sleek mobile platform.

• Zopa. Formerly a peer-to-peer lender, now a fully licensed digital bank offering savings and lending to UK customers.

Can I switch to a challenger bank using the Current Account Switch Service (CASS)?

Yes, you can use the Current Account Switch Service (CASS) to switch to many UK challenger banks, as long as both your current bank and the challenger bank are part of the scheme.

The switch service is free and moves your balance, Direct Debits, standing orders and incoming payments to the new account within seven working days, under the Current Account Switch Guarantee.

If anything goes wrong, your new bank must refund any interest or fees incurred.

Other useful guides

If you’re looking for more information about everyday banking, MoneySuperMarket has a host of helpful guides, including:

• Step-by-step guide to opening an online current account

• How to choose the best current account

• What is international banking?

Compare bank accounts with MoneySuperMarket

Comparing bank accounts with MoneySuperMarket is quick, clear and hassle-free. We let you easily review a wide range of challengers and traditional banks side by side, so you can compare key features such as fees, interest rates, budgeting tools and account perks.

You’ll also see details of any switching bonuses, cashback rewards or introductory offers that could help you make the most of your money.

Each account is broken down in a simple, easy-to-understand format, helping you choose the one that best suits your needs.

Once you’ve found the right option, applying takes just a few minutes – with many banks offering fast online setup so you can start managing your money straight away.