Today, let’s talk about European online banks. Like the stockbroking industry, the banking scene has been dramatically transformed over the past decade. We saw the first ‘electronic money institution’ (EMI) come to live in 2001 (it was Skrill, then called Moneybookers), but it wasn’t until the second ‘E-Money Directive’ was adopted in 2009 that things really took off.
In the EU’s Payment Institutions Register, there are now around 266 EMIs and licensed banks registered that operate entirely online (not including those from the UK and Switzerland). It’s safe to say that digital banking has become increasingly popular as a way for Europeans to manage their money online. In fact, many people today prefer doing their transactions through online banks over traditional banks because of the features and functionalities they offer.
The best online banks in Europe
Below, you’ll find the best European online bank picks for personal use. “Best” may mean something different to everyone, so your mileage may vary depending on where you live and your personal preferences.
- Revolut – Best overall European online bank
- Wise – Best multi-currency account
- HSBC Global Money – Best traditional bank
- Vivid Money – Best for cashback and investing
- Curve – Best cashback card
- Monese – Best UK bank account
Read more: The best online business banks in Europe
The best European online banks provide more than just an account number: they offer free foreign currency exchange, interbank rates, cashback on spending, investing tools, 24/7 customer service, and reliable security measures to keep your money safe from fraudsters.
Comparison of the best European online banks
Here’s a side-by-side comparison of the best online banks in Europe, based on the free tiers offered by each bank.
|Country of origin||UK/LT||UK||UK/HK||DE||UK||UK|
|Free EUR account||✓||✓||✓||✓||n/a||✓|
|Free USD account||✓||✓||✓||✗||n/a||✗|
|Free GBP account||✓||✓||✓||✗||n/a||✓|
|Free ATM withdrawals||€200/m||€200/m||Varies by plan||€200/m||€200/m||€1.5 per withdrawal|
|FX fee||€1,000/m free; |
(Visa exchange rate)
|Investment tools||✓||✗ (UK only)||✗ (UK only)||✓||✗||✗|
EMIs vs. banks
Many online banks are not real banks but electronic money institutions (EMIs). An EMI does not have a banking license but are digital money (E-money) service providers that falls under the EU Electronic Money Directive. An E-money institution is a financial company holding a license to issue money based on virtual funds, which can be used to make online payments.
EMIs offer many of the same services as banks, but they operate differently because they are not banks. Most importantly, EMIs do not store customers’ funds themselves but rely on partner banks to do so. This means that the money you deposit to an EMI is held with another institution, not the EMI itself.
Therefore, the most significant risk of using EMIs is not with the EMI but with its partner. However, EMIs are required to keep customer funds separate from their own, so in the event of an EMI failure, your money should still be safe with the custodial bank.
EMIs have both advantages and disadvantages in comparison to banks. EMIs are not allowed to lend money, limiting their ability to provide some banks’ services. They are also not allowed to give overdrafts or loans. However, this also limits the risk associated with credit products that banks are often criticized for.
Directive 2009/110/EC is the primary law for electronic money institutions in the European Union. The EU’s regulatory authorities that grant e-money institution licenses are bound by Directive 2009/110/EC. The FCA is the regulatory authority that issues e-money licenses in the UK. The UK, Lithuania, and Germany have been at the forefront of EMI innovation.
Here are the typical services that EMIs offer:
- Provide virtual IBANs and instant SEPA payments
- Conduct transfers on customers’ behalf from their partner banks
- Issue and distribute electronic money
- Operate in multiple different currencies
- Money transfers and remittance
- Cash withdrawals and deposits
- Transfer funds
- Issue physical and virtual debit payment cards
EMIs do not:
- Offer bank accounts insured under a deposit insurance scheme
- Issue credit products
- Offer loans or overdrafts
- Provide mortgage products
Why don’t EMIs just become banks?
The simple answer is that obtaining a full banking license is costly and time-consuming. The application process for an EU bank license can take up to five years and cost over €100 million. In contrast, the process for an EMI license takes less than a year and requires an initial share capital of only €350,000.
It’s also worth noting that not all EMIs aspire to become banks. Many believe that the banking sector is bloated with inefficiency and bureaucracy. They view themselves as digital-first, customer-centric companies that can offer a better experience at a lower cost than traditional banks.
What’s the deal with these online banks then?
Traditional banks can be quite frustrating when it comes to certain activities, such as dealing in non-local currencies and sending international payments. However, with online banks, these processes are often made much simpler (and they’re cheaper, too).
The benefits of these new digital online banks over traditional banks are hard to overlook. European online banks stand out because they’re free, offer personal or business IBAN accounts, are easy to travel with, and let you transact and spend in multiple different currencies without sky-high fees. Accounts in Euro, British Pound, US Dollar, and Swiss Franc are available with many of the best European online banks.
Is my money safe with an online bank?
If your online bank has a banking license, your money should be as safe as it would be in any other bank. This is because all banks, whether online-only or with physical branches, are bound by the same regulations. In Europe, the two primary regulations that banks must follow are the Bank Recovery and Resolution Directive (BRRD) and the Deposit Guarantee Scheme Directive (DGSD).
Whether money stored with electronic money institutions is safe is up to debate. It’s important to remember that an EMI does not hold customer funds directly. Instead, it keeps the money in pooled accounts with its partner banks. The biggest EMIs in Europe typically use “too big to fail” banks with a long financial stable history. There is little risk to customers if the EMI fails, as the custodial banks should still be standing.
E-Money issuers can’t do much with your money once it’s in their hands. The EMI pools your funds with other customers and builds a virtual balance in your account. An EMI is not permitted to loan out or utilize your deposited money for any purpose other than what it was intended for. EMIs can provide debit cards, establish IBANs, conduct transfers, set their own costs, and do a variety of basic bank-like operations; however, they cannot expose your money to credit or investment risk.
How an EMI protects your funds
An EMI holds customer funds in segregated accounts with a bank, credit institution, or with the central bank where the EMI is incorporated. This account is commonly referred to as the “bulk money account” or “omnibus account” The customer funds in this account cannot be used for any risk-related purposes other than to settle transactions with customers.
EMIs can only invest the funds in low-risk, highly liquid assets such as government bonds, covered bonds, and money market funds. These investments are made to ensure that there are always enough funds available to meet customer needs and so that the money does not decrease due to negative interest.
All European bank loans must also have professional indemnity insurance or another assurance against liability. This insurance protects customers if an EMI cannot meet its obligations as a business. In addition, many EMIs are licensed and regulated by competent national authorities. These organizations conduct regular audits of the EMI to ensure compliance with regulations.
How to choose an online bank
When choosing the best online bank for you, it’s important to consider a few key factors. For starters, online banks typically have lower fees than traditional brick-and-mortar institutions. They also offer higher rates and more intuitive digital banking products. However, not all online banks are the same, so it’s important to do your research before signing up.
Here are some other things to consider when choosing an online bank:
- Fees. Most online banks have a free starter account without registration or monthly maintenance fees. SEPA transfers are also usually free. However, some banks do charge for foreign currency exchanges and other services. But it’s easy to avoid fees at all by opening multiple accounts with different banks.
- Currencies. A free EUR account with a personal IBAN is necessary for any European online bank. If you live outside the Eurozone, having access to a free EUR account is a significant perk. If you frequently travel or do business internationally, it’s crucial to choose a bank that offers other currencies. This way, you can avoid costly foreign transaction fees.
- ATM withdrawals. While cash is slowly becoming obsolete, there are still times when you need it. Most online banks offer free ATM withdrawals from partner machines, but check the bank’s website for a complete list of participating institutions. The bank may not charge any fees, but the ATM owner may. Search the internet for the best deals on withdrawing cash abroad.
- Deposit insurance. Online banks in the European Union are not required to be members of the Deposit Guarantee Scheme (DGS). There’s no guarantee that your deposited funds up to €100,000 will be reimbursed if the bank goes bankrupt. However, digital banks are increasingly joining the DGS, so checking before opening an account is essential. If your bank is not a regulated institution, it’s worth considering how much risk you’re willing to take by keeping your money with them.
- Safety. Aside from bankruptcy protection, check if the bank has fraud insurance. This will safeguard your funds if your account is hacked or you are a victim of identity theft. Banks with two-factor authentication (where you need a code from your phone to log in) are typically more secure than those without this feature. SMS codes are generally not reliable because they are prone to SIM-swapping scams.
- Investing tools. Having a place to park your cash may not be enough for some people anymore. With the rise of retail investing, online banks are starting to offer simple investment products. These can help you grow your money without having to open a separate brokerage account.
Frequently asked questions (FAQs)
What exactly is an online bank?
An online bank is a financial institution that offers digital banking products and services via the internet. Online banks have no physical branches, so you can manage your accounts from anywhere in the world at any time.
How are online banks different from traditional banks?
The main difference between online and traditional banks is that online banks operate primarily through digital channels. This means that they have lower fees and more intuitive banking products. Online banks also tend to be more international, offering foreign currency accounts and other services for travellers.
What are the best online banks in Europe?
There is no definitive answer to this question, as each person’s needs will differ. If you’re satisfied with your current bank, it’s probably best to stick with them. However, say you’re looking for a more affordable and convenient option. In that case, there are plenty of great online banks in Europe to choose from. Just do your research before signing up.
Are European online banks insured?
No, not all European online banks are insured, but many are members of the Deposit Guarantee Scheme (DGS). This means that your deposited funds up to €100,000 will be reimbursed if the bank goes bankrupt. However, only banks with a license from the national bank regulator and the European Central Bank must join the DGS. Electronic money institutions are not banks but rely on the infrastructure of licensed banks, so they’re not covered by the DGS directly.
What is the safest online bank in Europe?
The safest online banks are those that are regulated as real banks by the national bank regulator. These banks are required to follow strict rules on managing customer funds, and they’re also subject to regular audits. Most importantly, they are protected by deposit insurance in the event of bankruptcy. Look for banks that are members of the Deposit Guarantee Scheme (DGS) to be sure your funds are safe.
The bottom line
There are a lot of great online banks in Europe, but it’s crucial to do your research before signing up. Make sure you understand the fees, terms, and conditions associated with each account. And don’t forget to check if the bank is insured and has proper security measures in place to protect against fraud.