Making accounts pay their way: Monthly fees may be on the cards for current account holders at high street banks, says Vivien Goldsmith

BANK customers who do not keep reasonable sums in their accounts will soon be paying charges with most banks.

Free banking for those in credit will come to an end, so those with small balances will have to pay for banking services. But those with large sums may gain from interest-paying accounts that are forced to deliver reasonable rates to balance the equation.

One bank said a radical restructuring of current account packages was under consideration. 'It may be more radical than simply having to have a minimum in the account or face charges,' a spokesman for one of the largest banks said.

The large high street banks are moving towards monthly fees as a way of making current accounts pay. But they are expecting one of the smaller banks to make the first move and smooth the path.

One bank described current accounts as 'loss leaders'. But these accounts are the bedrock of the retail banking business, and must somehow be made to pay their way.

The banks gave in to consumer pressure and dropped petty transaction charges for those in credit, and then introduced interest payments on credit balances.

But all this has backfired as interest rates have fallen. Many current accounts now pay way under 1 per cent net.

Abbey National, for instance, pays a flat rate of 0.38 per cent net on its current account.

If interest rates fall, it is difficult to see how the rates can be brought down any further.

The banks are now looking for an acceptable way to introduce flat charges. One way is to try to show customers that they are getting good value or added services. Another is to opt for high interest payments on balances and charges to deter the low-balance accounts.

One bank is considering a monthly charge of about pounds 5, but paying reasonable interest so those with average balances above pounds 5,000 would be better off. This is a high cut-off, and may be acceptable to banks with an up-market client base.

The mass-market banks will have to tread more carefully.

National Westminster Bank is thought by many to be the most likely of the large clearing banks to make the first move.

Barclays said it was looking at charges. 'We have no plans for the immediate future,' a spokesman said. 'We are still looking at it.'

But the spokesman admitted that some accounts that are in credit are run at a loss to the bank.

Midland Bank said it had no plans to introduce monthly charges. But it has experimented with offering different types of accounts to different customers, including the Vector Account, which charges pounds 120 a month.

The Consumers' Association said charges on current accounts were probably inevitable. 'And it's probably no bad thing, as those in debt are paying more to cross-subsidise those who are being paid interest,' a spokesman said. 'But it will be a brave bank that does it first.'

The banks all recognise that they have communications problems and none is enthusiastic about taking the lead after several months of bad publicity.

Halifax Building Society, the largest building society in the country, has shown that it can be done. A year ago it introduced a pounds 2.50 quarterly charge for those with balances of less than pounds 50 in their savings accounts and charges of 60p for cash and pounds 1 per cheque for all withdrawals after the first three in any month.

It has managed to shed over 1 million accounts with low balances.

John Walsh, the assistant general manager, said most of the accounts had very low balances. It was an exercise in trying to persuade people to use savings accounts for saving and not for regularly moving money about.

'This is not the same as charging people for current accounts. We are trying to stop people from treating the savings accounts as a current account.'

But the charges still do not cover the full cost of running low-balance accounts. 'The fee is a deterrent. It does not cover the full cost,' Mr Walsh said.