First Direct introduce fee's for their Current Account

In what may mark the beginning of the end for free banking as we know it, online bank, first direct, is writing to all its customers over the next month to tell them about changes to its current account and overdraft products.

From February 1st 2007, customers whose only product with first direct is a current account, will be asked to pay into that account at least £1,500 each month (internal transfers excluded) or maintain an average monthly balance on the account of over £1,500.

Customers who don't do so may be charged a banking fee of £10 a month for that account. If a customer holds more than one current account, each current account in a different name could incur this fee, but multiple accounts in the same name will only be charged once.

Customers who don't meet the minimum balance or payment requirements can still avoid the fee by taking out another first direct product, such as a savings account, home insurance or loan.

Over the next few weeks the bank will be contacting all its customers to explain the account changes. In addition, for the minority of customers who may incur the fee, it will clearly outline what they can do to avoid being charged.

first direct is taking its hard line stance because of the estimated 40,000 dormant accounts (unused for over 3 months) on its books - accounts it says are costing it money to administer.

The bank is also telling customers about changes to its overdraft service, which take effect on May 1st 2007. The key changes here are that customers will be able to request an overdraft either formally (in advance) or informally (not in advance).

A formal request is where a customer approaches the bank in advance to request an overdraft limit for a set period of up to 12 months.

An informal request is when a customer (without first approaching the bank) makes a debit from their account, for example a cash machine withdrawal or cheque payment, that takes them over any formally agreed overdraft limit or into overdraft if no formal limit has been agreed.

The bank says it will charge an overdraft arrangement fee of £25 for formal and informal overdrafts, although the fee will be waived in the following cases:

If first direct has not agreed an overdraft request in the previous six months

If funds are paid in to meet an informal overdraft by the end of the same day.

The bank is introducing a single interest rate for all overdraft borrowing and replacing current overdraft fees with the overdraft arrangement fee.

Return fees may still be charged if the bank returns unpaid any cheque, standing order or direct debit which a customer asks to be paid.

For items up to £10 no return fee will be charged; up to £25, £10 will be charged per item; and above £25 a fee of £25 will be charged for each item.

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