Digital-only banking use has grown for the second year in a row, according to new research from personal finance comparison site Finder, with superior interest rates as the biggest factor driving adoption. 

As shown in this chart, 2 in 5 UK adults (40%) have now opened a digital-only bank account, up from just over a third of Brits (36%) this time last year. In 2023, just a quarter of the population (24%) said they had opened one, and only 9% of the population said they had an account when the study was first run in 2019.

The desire for better interest rates is fuelling digital-only banking growth

For the first time in the annual study, higher interest rates have been the top reason for choosing a digital-only bank account, with 15% of Brits saying they have opened or will open one to secure a better rate. The top reason in the previous two years was wanting an easy-to-open secondary account.

The savings landscape is constantly shifting, but analysis shows that digital-only banks do now tend to offer higher interest rates. Finder analysed instant access savings rates and found that, on average, the interest rates at the main digital-only banks are more than double those at the ‘big four’ high street banks. 

Looking at the largest 4 traditional banks in the UK, the average rate on the main instant access savings product is 1.52% AER. Meanwhile, at 4 of the main digital banking providers, the average rate on the equivalent instant access account was 3.35% AER, giving customers more than twice in interest on their savings.

Interest rates were the top reason for choosing digital-only, but these accounts also have other factors that appeal to customers. Just under 15% of Brits chose digital to transfer money more easily, while 13% wanted the convenience offered. 

12% of UK adults opened or will open a digital-only account to get free transactions abroad, while 11% were looking for a secondary account and digital was the best option. 1 in 10 Brits (10%) chose or intend to open a digital-only account for a better app experience. 

Millions of Brits could still miss out on better rates and other digital banking perks

While digital-only bank accounts are gaining popularity year-on-year, many Brits could still be shutting themselves off from the perks these accounts offer. 

44% of Brits admitted they will either not consider a digital-only account or are unsure if they will ever open one - this is approximately 23 million people. Loyalty is a big factor, with 1 in 5 Brits (21%) avoiding digital-only accounts due to satisfaction with their current bank. 

Commenting on the findings, Louise Bastock, money expert at the personal finance comparison site Finder, said: 

“The continued growth in adoption shows that digital-only accounts are now a serious contender on the banking scene, rather than just the shiny new toy. 

“This year’s study reveals that bagging a good return on savings is now the main motivation, rather than customers just treating digital banks as an easy-to-open secondary account. This suggests a shift towards Brits being more savvy with their savings, and seeing digital accounts as a genuinely viable product to support their personal finances, rather than just testing them out on the side. 

“Money talks and if better interest rates are offered, digital banks will continue to gain customers and deposits. It’ll be interesting to see if traditional banks can match the rates of their digital counterparts, or if these digital banks can keep their customers if their rates start to fall to similar levels as the traditional banks.

“Our research also revealed that loyalty to a single provider could be stopping millions of Brits from accessing perks like better rates and sign-up bonuses. Considering you could potentially double your interest, loyal customers might want to consider moving some of their money into a digital bank account to take advantage of these perks, even if they don’t switch over completely.”