New money app launches with 5% interest rate: could Dozens rival Monzo?

A new moneyapp called 'Dozens' has launched, promising savers a 'guaranteed' 5% interest bond, as well as budgeting technology and the use of a current account all from one application. But can it rival Monzo and the other new 'fin-tech' apps services that are growing in popularity?

It's not a bank, but offers access to savings and current accounts. You can earn a guaranteed 5% return on your savings, and only need £100 to do it. You can set budgets. You can earn a £100 reward from hitting your savings goals.

It almost sounds too good to be true - so, is it?Thousands of people decided to find out. Launched on 7 January 2019, more than 2,100 Dozens cards have been issued, and 100 cards a day are being sent out to the 3,500 people waiting list.

Which? looks into how this new platform works, how safe your money is and whether it's worth a try.

How does Dozens work?

There are four sections to the Dozens app: spend, save, track and invest.

Spend is the current account; save is the savings account; track covers your budgeting; and invest is for stocks & shares investments on offer.

The 5% interest bonds

Perhaps the most enticing feature for prospective savers is the idea of earning 5% interest per year on a bond. Often, rates this high mean a risky investment but the money you deposit with Dozens isn't invested anywhere.

Instead, the bonds are held within a stocks & shares Isaand put into a separate trustee-controlled account. That means Dozens can no longer touch it, your return won't vary (and will be tax-free) and the capital isn't at risk.

While the trust bonds last for 12 months, you can sell up at any time, and as the interest is paid monthly, you'll receive that, too. But you'll have to sell back all bonds from a single issuance - so you either save everything for a year, or withdraw it all.

Each month, Dozens releases a tranch of bonds - between £100,000 and £1m worth - and savers can apply to buy them. You have to buy a minimum of £100, and any amount upwards of that must be in multiples of 100.

In a bid to reward those with smaller savings pots, Dozens says it will weight smaller funds more favourably. So, someone wanting to put in £500 is more likely to be successful than someone with £100,000.

So, are these bonds risk-free? Not really. Dozens has issued bonds on the NEX stock exchange as a way of raising money. As with any new start-up company, there is a risk that it could fail to make repayments.

It's worth keeping in mind that the bonds aren't a savings product, so won't be covered under the £85,000 savings guarantee from the Financial Services Compensation Scheme (FSCS).

Instead, if the worst should happen, you'd be covered by the FSCS investment protection, which offers up to £50,000 if your investment company fails.

Find out more:what is a stocks & shares Isa?

The savings account

In somewhat stark contrast to the 5% interest bonds, the Dozens instant-access savings account does not pay any interest - which seems counterintuitive for an app encouraging people to save.

Instead, there are cash prizes to be won. Each time you meet your savings target, you receive a nomination and are entered into a monthly prize draw for a Savers Award, a one-off £100 bonus payment.

As Dozens is not bank, cash is held with the Bank of Scotland in a client money account. Any interest you earn on these funds from the Bank of Scotland is retained by Dozens to cover its costs - though CEO AritraChakravarty saysDozens may be able to pay savings interest in future.

Note that, if and when savings do earn interest, the money earned from this will go towards your personal savings allowance and may be taxable.

Find out more:how to find the best savings account

The current account

Dozens doesn't yet have a banking licence - it's currently registered by the FCA as an investment firm and an e-money institution. So, while it offers current accounts, the money is not saved with Dozens. Instead, current account cash is held in a segregated account with the Bank of Scotland.

As the accounts are segregated, Bank of Scotland can't use the money to fund any of its lending, but you're still covered by the £85,000 FSCS protection under the bank's licence. If you have other funds with Bank of Scotland, however, keep in mind that any Dozens deposits will count towards your overall total.

The only fees from the current account are for sending money abroad - but spending abroad is free, as are global cash withdrawals.

Find out more:challenger and mobile banks

The budgeting service

Aritra says Dozens' budget features focus on projections. Rather than telling you how much money you have left after the money's already been spent, Dozens takes your disposable income and divides it into the remaining days and weeks until you next get paid - which is adjusted each time you spend, or don't spend - so you can plan in advance.

You can also set up 'if this then that' savings rules (IFTTT). These can be things like saving for a sunny holiday every time it rains in your location, or saving the cost of a pint every time you go into a pub.

The investments

Not yet launched, Dozens' investment options are referred to as 'emerging market bonds'. There'll be a higher minimum buy-in of £1,000 and, as with any investment,there is always a risk of losing some or all of your money.

Dozens plans to purchase high interest bonds in large amounts to then create smaller bonds that are more accessible to small-time investors. You'll have to complete a 'suitability assessment' to make sure you know that you could make a loss before you'll be eligible to buy.

Dozens is already FCA-registered as as investment firm, so claims would be eligible for £50,000 FSCS protection for negligent investment advice, failure or fraud.

Find out more:are you ready to invest?

Is your money safe?

Your money is protected differently by the FSCS depending on whether it's held by Dozens as an investment firm or the Bank of Scotland as a bank.

Current account and cash savings with Dozens are protected by up to £85,000 from FSCS through Bank of Scotland. But it's important to bear in mind that FSCS covers £85,000 per person, per institution. Bank of Scotland is owned by Lloyds Banking Group, so if you have money saved with in a different Bank of Scotland account, or with Lloyds Bank or Halifax, only £85,000 across all accounts will be covered.

The savings bond, on the other hand, is covered by the £50,000 FSCS protection for investment firms. This is only applicable if the adviser or firm who gave the advice is unable to meet the claim. You could also claim if the company goes bust.

This level of protection is due to increase to £85,000 in April this year.

Find out more:how to keep your savings safe

Should I get Dozens?

As with any new banking ventures, it's best to exercise caution before making any sizable investments.

It remains to be seen whether Dozens monetisation plans will come to fruition - it needs people to save and invest before it makes any money. Aritra even said that the app may have to change depending on people's saving and spending behaviour; if everyone simply uses it as a card to use for holiday money abroad, its current system won't be sustainable.

But the 5% bond is a competitive offer, and the fee-free overseas spending is likely to appeal to frequent travellers.

Aritra says the app is designed to help people on the journey from spenders, to savers, to investors - and if you have a small savings pot, this might give you the flexibility to get started.

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