Monzo is a new kind of bank with a strange name – they were originally called Mondo but had to change their name because of a trademark dispute and Monzo was what they came up with instead. They intend to offer a full current account later this year but meantime what they offer is a brightly-coloured and eye-catching prepayment MasterCard.
It’s not a credit card or a debit card – it’s a “prepayment” card, which is linked to a smartphone app. You can only spend what you’ve already transferred to the card – there’s no credit limit or overdraft to dip into. That’s already a “good thing” as it removes the temptation to spend more than we know we should, but the really great thing is that every time you use the card, Monzo immediately sends your smartphone a notification and updates the app to show the balance left on your card. This makes the Monzo card almost as good as cash!
Let’s hear it for cash
When it comes to money management, Cash Is King. The CAP Money System, devised by Christians Against Poverty, recommends that families use cash instead of debit cards for all “discretionary” spending – groceries, housekeeping, and treats like take-away meals and DVDs. Draw out in cash what you have decided to spend each week, and when it’s gone – it’s gone. At any time you can see how much cash you have left to spend, and the act of spending money creates helpful “friction” – you have to part with lovely £20 notes and all you get back is a few coins – you instantly feel poorer, and it’s not nice. Debit Cards are comparatively “frictionless” – you hand over the card, make the payment, and then you get it back again. It seems like nothing has changed. Somewhere up in the “cloud” your bank account will eventually be updated, but that’s quite remote and doesn’t have the same impact. It just doesn’t feel like you have spent any money.
The next best thing
It’s not as powerful as cash, but the Monzo card is a good second-best, and motivationally is streets ahead of the standard debit card. It works really well for contactless payments. One problem with using debit cards for contactless payments is that you have to trust the technology that your account has been charged the right amount of money. Even with online banking on your smartphone it can take hours or even days before the payment shows up in your account. With Monzo the notification is instant, signalled by the sound of coins falling, which is strangely comforting. So long as your smartphone is linked to the internet, the balance shown on your Monzo app is kept updated, which really helps to keep track of your spending.
Could Monzo work for you?
The key to making day-to-day money management “easy” is to do the hard work up-front. That means deciding up-front how you’re going to use Monzo:
- what kind of spending you’re going to use it for,
- how much you will budget to spend, and
- how often you will top up the Monzo card.
I have found it best to set up a standing order to transfer money to the card, rather than topping up “on demand” – that way you’re less likely to create an unhelpful habit of transferring more money, and more often, that you decided when you did your “hard” thinking up-front. I have learnt this lesson the hard way.
It’s your decision
Monzo is working well for both me and my wife Sue, since we both started using them as our spending accounts a few months ago. May was a landmark month for Sue – she reached the end of the month and for the first time in recorded history she still had money left in her spending account!
But you will have to decide for yourself if a Monzo card is a good idea for you. Bear in mind that prepaid cards are not linked to a bank account so they are not covered by the official FSCS scheme that guarantees bank account balances up to £85,000. You can use them to get cash from an ATM, but you can’t use them to get cash back at the supermarket checkout. Also, they may not operate in exactly the same way when Monzo starts offering traditional bank accounts later this year. I’ve read that Monzo may start offering overdrafts which from my “Easy Money” point of view would be a bad idea and a backward step.
I’d love to hear from Monzo users out there – is it working for you? What tips would you like to pass on?