Digital bank Monzo has announced a significant reduction to the interest rates paid on its popular savings products, a move that is likely to disappoint many of its customers.
What Rates Are Being Cut?
The changes, which come into effect on 6 January 2026, will see the interest earned on the bank's well-known 1p Savings Challenge drop from 3.50% AER to 3.25% AER.
Furthermore, customers who hold a Personal Instant Access Savings Pot will also see their rate cut on the same date, falling from 3% AER to 2.75% AER.
Understanding the 1p Savings Challenge
The 1p Savings Challenge is a feature designed to help users build a savings habit gradually. To use it, customers need a Monzo Extra, Perks or Max account.
The challenge works on an incremental basis:
- On day one, 1p is moved from your current account to a dedicated Challenge Pot.
- On day two, the amount increases to 2p, then 3p on day three, and so on.
- If maintained for the full 365 days, the total saved (excluding interest) amounts to £667.95.
Monzo states that the challenge is flexible. Users can pause their daily savings and catch up later, withdraw money from the pot, or end the challenge at any time.
Impact and Key Details for Savers
Interest on the Challenge Pot is paid monthly on the 1st, provided the amount is 1p or more. The bank has reminded customers that the rate is variable and subject to change.
While the rate reduction will slightly diminish the returns, the underlying mechanics of the challenge remain a potent savings tool. For example, by day 30, a saver would have £4.65, and halfway through the year, the pot would contain £168.36.
It is important to note that all eligible deposits with Monzo are protected by the Financial Services Compensation Scheme (FSCS) up to £120,000 per person.
This decision by Monzo reflects broader trends in the savings market, where banks frequently adjust rates in response to economic conditions and Bank of England base rate decisions.
