The end of free banking will come 'in the next five years'

Customers with free current accounts still pay for the service in other ways

The battle between the banks to attract more current account customers moved up a level this week when Yorkshire Bank (and Clydesdale Bank) launched a market- leading £150 switching incentive. (BARBARA LABORDE | AFP | Getty Images)

Banks may start charging UK customers to hold current accounts within the next five years.

That's the view of Steve Davies, head of retail and commercial banking at PwC, who said that free bank accounts will soon be a thing of the past as banks move customers into package deals, where customers pay for the things that are added onto the account, to charging monthly.

"We are all paying for current accounts anyway," Davies said. "But are there going to be direct charges? Yes. It’s already happening."

Santander has announced that customers will have to pay £5 a month to keep their 123 current account from January, effectively levying a charge on its special deal of 3 per cent interest on balances between £3000 and £20,000.

Davies said that customers with free current accounts still pay for the service in other ways. Those who stray into their overdraft can be lumped with severe charges. Even customers who keep their balance in the black suffer low interest.

Banks also make money off the financial data they hold on their customers. “The bank has data on and is using that to recommend products. That can be helpful, but is cross-selling at the end of the day,” Davies said.

The UK is the only develop country in the world to offer free current accounts as standard. Until one of the big four banks – RBS, HSBC, Barclays and Lloyds – starts charging, there will never be a real change, Davies said. These banks are unlikely to break ranks for fear of losing customers, while politicians are unlikely to advocate such an unpopular idea.

A review on the competitiveness of the retail banking sector by the Competition and Markets Authority is due to be published in the coming months, following two years of research. Davies said that if the CMA Review pushes for paid-for accounts, it could happen even quicket.

"Many reviews of banking in the last few years have been neutral or in favour of paid for accounts," Davies said.

Santander may find that higher interest rates still attract customers to the 123 account despite the small fee. Just as people may decide, in a time of permanently low interest rates, that it’s worth paying for the perks.