U is the latest in a string of new digital challenger brands aiming to entice your cash away from the traditional banks.
It prides itself on the fact it isn’t a bank – instead of slapping you with daily charges when you accidentally go overdrawn, it is designed to stop that from happening by allowing you to set up multiple ‘pots’ to help with saving, paying bills and budgeting.
It comes at a cost though: if you want an account you’ll pay a flat monthly fee and it costs extra to set up direct debits or withdraw your money. So is it worth considering or is it just a clever gimmick?
Antidote to the banks? U has a new approach to current accounts
The U Account and U itself is an off-shoot of Ffrees Family Finance, which previously offered a range of pre-paid card services with similar budgeting pots. The new U account has bettered the original offering, which didn’t allow payments to be made from the savings pots users set up.
With U, your wage can be paid into the account, it comes with a contactless Mastercard debit card and you can pay cash in, make payments and set up direct debits or standing orders.
Importantly though, it isn’t a bank and so any money you deposit into it isn’t covered by the Financial Services Compensation Scheme, which protects savings up to £75,000.
There are three account options to choose from with monthly fees of £5 or £10 as well as a no-fee option.
The £10 a month option comes with all the bells and whistles – you get five extra accounts to help budget and ATM withdrawals and payments out of the account are all included in the monthly fee.
That’s your lot though. Use the card to take out cash abroad and you pay 3 per cent and any additional ‘jam jar’ accounts cost 50p each.
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The £5-per-month option offers two additional savings pots at no extra cost (again it’s an extra 50p for additional accounts), ATM withdrawals cost 50p each plus an extra 3 per cent when you are abroad. Payments out of the account also cost 50p each.
The no-fee option has the highest extra charges. ATM withdrawals cost £1 each (plus per cent when abroad) as do payments from your account and any extra accounts you want to attach to divert fund to for paying your bills.
Watch out for the hidden fees as well. Replacing a lost debit card costs £3.50 and it costs you £1 for every month you leave your account dormant after 60 days. The real kicker is that if you want to pay cash into your account you have to use a Paypoint.
This feature won’t be available until the end of the year, but when it is, U Account will skim three per cent off the top on each payment in.
On the plus side, all three accounts pay cashback with some retailers, which is paid into a separate account for which you don’t pay extra.
According to research by the challenger, a quarter of typical current account holders have as little as £1 in their accounts by the time pay day rolls round and half have been hit with expensive fees of up to £10 a day for borrowing.
The average authorised overdraft costs £14.10 a month in interest while unauthorised borrowing costs reach a massive £53.09 a month, according to research by Moneyfacts.
The U account aims to stand out by scrapping borrowing fees by preventing the risk of falling into an overdraft.
All high-street banks offer their ownbasic bank accounts for anyone wanting to avoid borrowing. The difference with the U account, is that it comes with additional pots to annexe away cash you don’t want to spend and a money management tool which breaks down your spending.
U is not a bank, which means it is not subject to the same regulations and funds won’t be protected by the Financial Services Compensation Scheme.
There are other safeguards in place if the company goes bust – all client funds are kept separately in a Barclays account and are therefore ring-fenced from the company’s liabilities or risk.
However the cash is only kept in one account at Barclays which means in the unlikely situation that Barclays itself goes bust only the first £75,000 of customer funds would be covered by the Financial Services Compensation Scheme.