Banks plan current account fees in an end to free banking

The British Bankers Association (BBA) has suggested high street giants are likely to impose monthly fees as already happens in the U.S., Australia and Europe.

Customers could also be hit with fees to write cheques, pay bills by direct debit or standing order and use cash machines.

Plans for a shake-up in the way people pay for bank services represent the fallout from an Office of Fair Trading (OFT) crackdown on penalty charges.

The watchdog has suggested that fees of up to £39 for busting an overdraft limit or bouncing a payment are unfair and illegal, and would like to see the figure capped at a much lower level.

Any such move would cut bank income by more than £2billion a year.

But the banks have made clear they would protect their profits by introducing current account fees on everyone.

A BBA spokesman said: "The banks could follow patterns abroad where banks charge for transactions such as ATM use, direct debits and standing orders, in addition to an annual fee."

The telephone and internet bank, First Direct, which is part of HSBC, began charging around 20,000 customers £10 a month on their current accounts earlier this year. A number of other banks have begun imposing similar annual fees on credit cards, and they are expected to extend these to current accounts.

The threat of new charges comes at a time when the country's biggest five banks have been unveiling record profits of more than £20billion for the past six months.

Much of this cash is made through the imposition of back-door and hidden charges and penalty fees.

In other parts of the world, subsidiaries of these same banks work on the basis of charging their customers up-front current account fees.

The OFT and the Competition Commission have signalled some support for this type of regime as a fairer way to charge for banking.