The competition for bank customers escalated this week as a new contender entered the UK current account market, offering cashback on bills and a savings account with a 7.1% interest rate. Digital bank Zopa aims to attract customers to its first everyday account with these enticing features, which also include interest on in-credit balances and no fees for spending abroad.
Founded in 2005 as a peer-to-peer lending platform, Zopa initially connected savers seeking better returns with borrowers in need of loans. The company later discontinued its peer-to-peer operations and has since evolved into a fully fledged digital bank.
Zopa's current account, named Biscuit, is free to open and cleverly plays on the idea of "watching your dough rise." To set up the account, customers simply need to use the Zopa app, which the company claims takes just minutes.
The account features no monthly fees and includes a contactless Visa debit card. Zopa emphasizes that, unlike many other fintech companies, it possesses a full UK banking license, ensuring that deposits are protected up to £85,000 by the Financial Services Compensation Scheme.
While Biscuit may not suit everyone, it offers several attractive features, such as no fees for overseas card spending and a 2% AER (1.98% gross) interest rate on current account balances, with no earning limit. This rate is fixed for the first 12 months and becomes variable thereafter.
Additionally, the account provides 2% cashback on any direct debits paid from it, capped at a maximum direct debit value of £1,500 per year, with this rate guaranteed for 12 months.
The digital bank also offers a regular saver account with a competitive interest rate of 7.1% AER (6.87% gross), allowing deposits of up to £300 per month. If this rate remains unchanged for the next year, you could potentially earn up to £137.
Customers can reach the bank through in-app chat or by phone, and they can link external accounts to manage their finances and make payments from a single platform.
However, there are some drawbacks. Zopa is designed for users comfortable with an app-based account; those needing branch access should consider other options. Additionally, cash and cheque deposits are not permitted.
Currently, it does not provide an arranged overdraft and is not compatible with the banking industry's current account switching service, which is designed to make transferring your current account from one bank to another easy and hassle-free.
Andrew Hagger, a personal finance expert and founder of MoneyComms, comments, “At first glance, this seems like a good deal... It's always beneficial to have new competition in the banking sector.”
He notes that other challenger banks, like Starling, have previously offered in-credit interest, only to later withdraw it. “Let’s hope this doesn’t get cut after the initial 12-month fixed-rate period,” he adds.
