Cash deposit limits. You can deposit between £5-300 in one go, and up to £1,000 in total every six months. If you’re 16-17 years old, that limit's lower, so you can only deposit a maximum of £500 every. Monzo has also been preparing for future coronavirus-related losses. Its annual report asserts that it has enough ‘High Quality Liquid Assets’ – that is, investments that can be quickly and easily converted into cash – to cover all of its customers’ deposits. Because Monzo and Starling are regulated banks in the UK, the money you put in your Monzo or Starling account is protected up to £85,000 by the Financial Services Compensation Scheme (FSCS). The FSCS is an independent fund set up by the government to help protect people’s money. Making a cash deposit. If you'd like to pay cash into your Monzo account, you can deposit cash at any of 28,000 PayPoint locations across the UK. We pass on a £1 fee for making the deposit to help us cover.

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Change is afoot in the world of challenger banks, as two of the UK’s biggest names – Monzo and Starling – introduce new fees and charges for some of their current account features.

From forking out for cash withdrawals to covering the costs of extra cards, the free ride many users have been on for the past few years may have reached the end of the road – but, in many cases, this will depend how you use your account.

Monzo customers who come under the new charges will have to start paying from 31 October; Starling’s fees are being introduced from 4 November.

Here, Which? explains what the new challenger bank fees will be and reveal whether the big high street banks are likely to follow suit.

Monzo and Starling introduce new fees

Monzo and Starling rose to fame and popularity with their new banking features – slick apps, free spending abroad and real-time transactions are just a few of the favourites.

However, both brands have started to explore what services they think it’s ‘fair’ for customers to pay for – for Monzo, that’s based on whether you use its services as your main current account; for Starling, it’s whether you want to take advantage of its additional features.

Monzo’s new fees

From 31 October, Monzo is introducing the following fees on its current accounts for some customers:

• £5 fee for card replacements in the UK – unless you’re a victim of fraud, your card is stolen or it expires
• 3% fee on cash withdrawals of more than £250 in the UK and EEA countries.

Based on spending behaviour from last year, Monzo estimates that 21% of its customers will be affected by the fees; so roughly 840,000 of its four miillion customer base.

It says the average Monzo customer withdraws £36 a month in cash, 90% of people have never had to order a replacement card and 99% of people have never had to request more than two in a year.

You won’t need to pay anything if:

• You pay in at least £500 to your Monzo account every 35 days and have at least one active direct debit from that account
• You get a payment such as Universal Credit or state pension paid into your account every 35 days
• You get a student loan payment into your Monzo account every eight months
• You share a joint account with someone who does one of the above
• You have a Monzo Plus account
• You don’t lose your card more than twice a year.

The minimum spend and requirement to have at least one direct debit is to show how reliant someone is on their Monzo account; if you don’t have any direct debits and you’re paying in less than £500 a month, it’s likely you’ve got another bank account you’re using more – and therefore you could make free ATM withdrawals with that account, rather than Monzo footing the bill for them.

Monzo says any customers struggling financially should get in touch to discuss being exempted from the new fees or refunded.

Starling’s new fees

From 4 November Starling customers will be charged the following:

• £5 for card replacements (the first one is free)
• Minus 0.5% AER on deposits of more than €50,000 held in euro accounts, which means savers have to pay to store higher funds.
• £20 for CHAPS transfers.

Additionally, Starling is launching some new products soon, which will be charged as follows:

• £2 a month for new Connected cards – the original version remains free to those who have already signed up
• £2 a month per card for its new Kite kids’ cards
• £2 a month to hold an additional personal account (the first one is free)
• £2 a month to hold an additional joint account with the same person (the first one is free).

You won’t need to pay anything if you don’t use the features listed above.

Starling’s Connected cards first launched as a way to support vulnerable customers during the coronavirus crisis, allowing customers to request an extra card that can be given to a friend or neighbour if they’re shielding or self-isolating and can’t get to the shops. The new version will allow wider use – for example, parents can give a card to a childminder when they take their kids out for the day.

The Starling Kite kids’ cards present a new option for parents of under-16s. Each card can be used online, in store and for cash withdrawals. Parents also receive notifications whenever a child spends money and can also set daily transaction limits.

How do customers feel about the new fees?

We asked Which? Money Twitter followers whether they’d be willing to pay for some services in order to keep their Monzo or Starling current account.

Monzo Deposit Cash Bonus

How do you feel about challenger banks, such as Monzo and Starling, introducing fees? Would you be willing to pay for some services to keep your account?

— Which? Money (@WhichMoney) 8 September 2020

Perhaps unsurprisingly, the vague idea of paying new fees proved unpopular – however, as we’ve explained above, many people won’t need to pay any extra charges.

Challenger banks have proved to be increasingly popular over the past few years.

According to BACS switching data, Monzo and Starling were two of the biggest winners for attracting new customers last year, and both banks were in the top three customer-rated banks in the most recent Which? customer satisfaction banking survey.

Are challenger banks struggling?

One of the biggest problems faced by challengers is how to become profitable. There’s a delicate balance between attracting a large customer base and getting those customers to earn you money. Offering perks and freebies is obviously attractive, but costs banks money.

August saw the release of annual reports of Monzo, Starling and Revolut – all of which are trying to find this balance.

Monzo’s £113.8m losses hit the headlines, while Revolut stacked up £107.4m and Starling lost £52m. Much of this was due to increased investments required to help the companies grow and should be weighed up against how much revenue each bank made, what its revenue streams are and the size of its customer base.

For instance, Revolut has the most customers – counting 13 million in September 2020, which presents a huge opportunity to make money. Starling, by contrast, has 1.08 million customers (as of November 2019), but it reportedly has more diverse sources of revenue, including charges for its business bank accounts.

What may prove to be a sticking point is the effect of coronavirus on lending. Revolut is not a UK-registered bank and therefore doesn’t offer loans, but Monzo and Starling both do. If a lot of customers aren’t able to pay back their loans due to financial difficulty, it could have a negative impact on their balance sheets.

Some of the services Monzo and Starling plan to charge for already have to be paid for by Revolut customers.

Revolut’s existing fees

Those who opt for a standard Revolut card will have to pay the following:

• Delivery fee for your first Revolut card
• £5, or currency equivalent, for each replacement card, plus delivery
• 2% on cash withdrawals of more than £200 each month.

If you use Revolut to transfer money abroad and/or to make a currency exchange to invest in cryptocurrency or precious metals, there are also additional charges.

Those who opt for the Premium or Metal card receive free delivery on their first card, as well as two free replacement cards and free delivery. Further replacements will cost Premium customers £10 per replacement card, while more Metal cards cost £40 each.

Revolut told us it does not currently have plans to introduce any new fees or charges.

• Find out more:challenger and mobile banks

Are other banks likely to bring in similar fees?

We asked the major UK high street banks whether or not they had plans to introduce new fees for current account customers.

Of those that got back to us, none reported any plans to do so.

However, it’s worth bearing in mind that major high street banks have far more options for both saving money and raising revenue than smaller, online-only operations.

Over the past six months, we’ve seen banks withdraw low deposit mortgages, reduce their savings rates to an all-time low and continue to close bank branches.

There are also far fewer credit cards and loan deals to choose from, and some of the most popular current accounts such as Nationwide’s FlexDirect and Santander’s 123 have had their interest more than halved.

So, while the big banks may not be planning to levy current account charges right now, it’s worth weighing up the other things that are being cut back on.

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Monzo’s latest annual report shows its losses after tax reached £113.8m in 2019-20 – more than double the year before.

This is despite the fact that more than four million people now have a Monzo account, with Current Account Switch Service (CASS) figures showing it had the highest net switching gains of any other UK bank in that year.

Monzo says the coronavirus pandemic is continuing to make a ‘significant impact’ on the business, which has already made 120 redundancies in its UK head office earlier this year.

But is this something Monzo current account and savings account customers need to worry about?

Here, Which? looks at the challenges faced by banks like Monzo and what you need to do to keep your money safe.

Should I be worried about my Monzo account?

In short, no. It’s important to note that Monzo is in no immediate financial danger and it is continuing to function as normal.

While the bank’s losses for 2019-20 are significant, it puts them down to increased investments.

It may be that new products will be able to turn the losses around. Just last month we saw the launch of new premium account Monzo Plus, which costs £5 a month, and there are hints that further paid-for products are in the pipeline.

Monzo has also been preparing for future coronavirus-related losses. Its annual report asserts that it has enough ‘High Quality Liquid Assets’ – that is, investments that can be quickly and easily converted into cash – to cover all of its customers’ deposits.

However, should the worst happen and Monzo goes bust, deposits of up to £85,000 (or up to £1m in certain circumstances, see below) will be covered by the Financial Services Compensation Scheme (FSCS).

• Find out more:best and worst banks

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How to ensure your Monzo money is protected by the FSCS

If a UK bank, building society or credit union goes bust, the FSCS will cover up to £85,000 held in deposit accounts. That’s per person, per banking institution – not per bank.

If you have a large amount of money in your current account and savings, it’s good practice to split this across more than one banking institution to make sure you don’t exceed the limit.

For instance, if you had £50,000 saved with Halifax and £50,000 saved with Bank of Scotland – which are both a part of Lloyds Banking Group – you’d be in danger of losing £15,000 if the group were to go bust, as the savings would exceed the FSCS protection limit.

However, splitting your savings between, say, Halifax and Santander would mean all of your money is covered, as the banks belong to different banking institutions.

Monzo offers a current account, joint account, premium account, pots and savings accounts. If you have a total of more than £85,000 held across these accounts, it’s best to transfer some of this cash elsewhere so that it does not exceed the limit covered by the FSCS.

It’s worth taking extra care if you have a Monzo savings account that’s offered through a partnership with other savings providers, including OakNorth Bank, Charter Savings Bank and Paragon. If you had a Monzo savings pot that’s provided by, say, OakNorth Bank, and a separate account that you opened directly with OakNorth Bank, then the deposits held in both of those accounts would count towards the limit of £85,000.

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• Find out more:The FSCS – are my savings safe?

The ‘temporary high balances’ exception

In some circumstances you could be covered for holding more than £85,000 in your bank account under the FSCS, but for a limited time and in certain circumstances.

There’s a measure to protect some types of ‘temporary high balances’ (THB) worth up to £1m, where certain life events mean you have more money in your account the normal. This may be the result of a house sale, redundancy payment or inheritance, for example.

Originally the THB protection only lasted six months, but from 6 August the Prudential Regulatory Authority (PRA) is temporarily extending the THB timeframe to 12 months. The move is in recognition that some people have had reduced access to banking services, and that due to the impact of COVID-19 there could be more people with large balances who need a longer period of protection.

In any case, you will need to prove the balance meets the criteria of a THB and provide evidence in order to make a claim.

The FSCS also covers mortgages, insurance and investments, but the terms and compensation amounts vary depending on the type of product you take out.

How is COVID-19 affecting banks?

As with much of the UK economy, the full effects of the coronavirus crisis aren’t fully understood yet, but banks face several challenges from the fallout. A few of these include:

• Payment holidays In April the FCA announced all lenders must offer payment holidays for mortgages, overdrafts, personal loans, credit cards, motor finance and high-cost credit, in a bid to help those whose finances were affected by COVID-19. This has meant banks have had months of reduced income; Monzo’s annual statement revealed it had granted 811 loan payment holidays in 2020-21.
• Loan losses When the mandatory payment holidays finish at the end of October, there are likely to be a significant number of people who are still unable to pay what they owe. This means lenders may miss out significant amounts of money they had loaned out.
• Tentative spending Even those who aren’t in financial difficulty may pose problems for banks, as uncertainty about the future could put people off spending as they did pre-pandemic, meaning a reduction in ‘good’ loans.
• Reduced switching The latest Current Account Switch Service figures showed a 65% fall in the number of bank account switches between April and June of this year, which means banks are finding it hard to get new customers. Halifax recently launched a £100 switching bonus in a bid to tempt people back into moving.

Read the latest coronavirus news and advice from Which?