Are the days of free banking numbered?

Free banking - where customers are not charged for having a straightforward bank account so long as they stay in the black - is something we have all come to expect in the UK.

But there are signs that we could be edging into line with the rest of the globe, where nobody raises an eyebrow when they are charged for their everyday banking, whether in the form of a monthly fee or a charge per transaction.

A changing approach to banking

Packaged accounts, which charge a monthly fee in return for extras such as breakdown cover, travel and gadget insurance, already represent a significant chunk of the UK's retail banking sector - an estimated 20% of consumers voluntarily hold this type of account.

And around a third of the current accounts listed on MoneySupermarket are packaged accounts.

But the sands are now shifting for the rest of us too. At the end of May, Barclays announced a major change in its approach to personal banking, making it more appealing for its customers to choose to pay for their accounts.

The bank, the fourth largest in the UK, announced it is replacing all its packaged accounts with just one that allows customers, both new and existing, to add on a selection of extras. These are known as 'packs'.

You can opt to add onto your account as many packs as you want by logging onto your online banking and simply dragging them into your account. They can be removed in the same way, which means you will automatically stop paying for them too.

New Barclays Packs

Some of the packs available under the new accounts are - and always have been - free of charge. This includes savings products and, if you qualify, an overdraft. You can also have your balance texted to your phone free of charge.

But as soon as you start adding on other bells and whistles, it will start to cost you. Prices start from £6 a month for the Home Pack, which provides cover for your satellite and TV equipment, extended warranty on domestic appliances, a troubleshooting service for your PC, a concierge service and a legal and tax helpline.

The Travel Pack is a touch more expensive at £8.50 a month, and offers RAC roadside and At Home assistance, European family travel insurance and card protection.

Is this the end of free banking?

But is Barclays paving the way for the end of free banking? After all, it follows in the footsteps of First Direct, which now charges £10 a month for its current accounts, unless you have another product with the bank, such as a mortgage, credit card or savings product - or you pay in at least £1,500 a month.

There is an argument that there is no such thing as 'free banking' anyway. Andrew Bailey, executive director at the Bank of England and soon-to-be chief regulator of the financial services industry, recently described the concept as a 'dangerous myth'.

He claimed that, while you might not pay a monthly cost to operate your current account, customers pay in other ways such as by very low rates of interest applied to in-credit accounts.

Some customers might pay in more obvious ways too, including whopping interest rates and charges on overdrafts, especially when the borrowing is unauthorised.

The best packaged current accounts

If you share this view or just feel you would benefit from an account that offers benefits in exchange for a monthly fee, you will need to scour the market for the best packaged accounts on the market.

So what's out there?

Santander's 123 cashback current account offers 1% interest on balances over £1,000; 2% on balances over £2,000; and 3% on balances over £3,000 (up to a cap of £20,000).

As also promised in the name, it also pays cashback of 1% on any spend on water and council tax bills from the account; 2% of electricity and gas bills; and 3% on mobile, home phone, broadband and paid-for TV packages.

Providing you remain in credit, this account could easily be worth the £2-a-month fee and minimum monthly funding of £500.

The Halifax Ultimate Reward Account is another example of fee-based account that could pay off. It charges £15 a month, though this is reduced to £10 when you credit at least £1,000 a month to the account.

In return you will receive worldwide multi-trip family travel insurance, a fee-free overdraft of up to £300, AA Breakdown Cover, mobile phone insurance, home emergency cover and card protection.

Making hay while the sun shines

However, we are not at the end of free banking yet, whatever you think of the definition. In fact, in some cases, banks will even pay for your custom.

For example, you will be in line for £125 cashback when you switch to First Direct via MoneySupermarket before June 14.

Again, you will need to either deposit a minimum of £1,500 a month or take another product with the bank if you want to sidestep the £10 a month fee.

But if you are unhappy and want to switch to another bank within the first 12 months, First Direct will even pay you a further £100.

Halifax has also just announced the return of its switching initiative under which customers are offered £100 to move their existing current account to the bank. And if you pay in £1,000 a month, you will also be paid an ongoing reward of £5.

According to Anthony Warrington, director of current accounts at Halifax, in the first three months of this year, over 80,000 customers took the opportunity to switch - nearly double the same period last year.

While this shows an increasing appetite to stay on top of the deals and offers supplied by banks, it's important to look beyond any initial incentives to see if it's the right account for you.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.