A major UK digital bank is reducing the interest paid on its popular savings accounts, a move that will disappoint many customers aiming to grow their cash pots.
Rate Reduction Hits Popular Savings Pots
Monzo has informed its customers that the interest earned on its viral 1p Challenge savings pot will drop from 3.50% AER to 3.25% AER. The change takes effect from January 6. Customers using the bank's Personal Instant Access Savings Pots will also see their rate cut, falling from 3% AER to 2.75% AER on the same date.
The 1p Challenge, which gained huge popularity on platforms like TikTok, automatically transfers increasing amounts from a user's current account to a savings pot each day—starting at 1p and rising to £3.65 on day 365. The initiative, designed to help younger adults save, allows participants to build a yearly total of £667.95.
Bank of England Decision Triggers Change
This adjustment follows a significant decision by the Bank of England's Monetary Policy Committee (MPC) last week. The MPC voted to cut the UK base interest rate from 4% to 3.75%, its lowest level in nearly three years. The Bank acted as inflation is now expected to fall faster than previously forecast.
While the rate cut is positive news for homeowners, potentially leading to lower mortgage rates and a 'turning point' for the housing market, it represents a setback for savers across the country who will see returns diminish.
App Feature Removed Ahead of Christmas
This news comes as Monzo users nationwide experienced another significant change to the app just before Christmas. The bank discontinued its 'Summary' feature on December 21. This tool allowed customers to get a quick overview of their financial position and simplify budgeting.
Monzo has stated it is removing this popular feature and will introduce an entirely new service in its place, though details of the replacement are yet to be fully announced.
The combination of lower savings returns and changes to app functionality marks a notable shift for the digital bank's customers as the new year begins.
