Defaqto, the financial services research company, believes First Direct’s announcement that from 1st February 2007 customers who do not deposit at least £1,500 a month or maintain a current account balance of £1,500 a month will be subject to fees of £10 a month is “another step in the seemingly inevitable move” towards the end of free banking.

However, Chief Executive of First Direct, Chris Pilling defended the move on BBC Radio 5 Live and denied that the industry had decided en masse to introduce charges on current accounts. He said "I would contest whether it is the end of free banking as we know it" the bank enjoyed the "upper end of the demographic profile" in its customers, of whom 15% will be affected by the charge. He added that there were measures customers could take to avoid the charge such as putting more money into the account each month or taking out a loan, mortgage or insurance product with them.

The bank's decision to charge customers £10 a month to hold a current account unless they deposit or maintain a balance of at least £1,500 a month has attracted widespread criticism from consumer groups such as The Consumer Action Group and Which?, which pointed out that you would need an annual income of £24,000 or more to stay above First Direct's minimum funding requirement.

Speculation that banks will bring an end to free current accounts has increased since September, when the Office of Fair Trading (OFT) announced it was going to take a look at the charges levied by banks for unauthorised overdrafts.

David Black, Defaqto’s Head of Banking and author of “Current Account Report: Paying the Price” says: “To date failure to deposit set monthly minimum amounts into current accounts has largely been deterred by cutting credit interest rates or, in one case, increasing overdraft rates. This is the first time a monthly fee has been proposed.

“Obligatory monthly fees for in-credit accounts have generally been restricted to the premium accounts which offer added value incentives. First Direct’s move is in effect a half-way house as it is leaving the door open to free banking for the more affluent and may have the added benefit to First Direct of ridding them of the expense of servicing the needs of people who are using them as a secondary current account.

“Regrettably I believe that this announcement is another step in the seemingly inevitable move towards paying for the majority of full service current accounts". Future developments may take one of two directions – either obligatory fees or charging by number of transactions for certain items."

Philip Williamson, the outgoing chief executive of Nationwide building society, says First Direct's move is "another nail in the coffin of free banking". "It does cost us money to run current accounts, and depending what comes out of the OFT's enquiry into overdrafts and how our competitors react, we will have to assess the situation. I don't think we can rule out charging for current accounts totally," he adds.

The official line from most big banks, including Barclays, Lloyds TSB, NatWest and Royal Bank of Scotland, is that they "have no plans to introduce fees." It will be interesting to see whether their position changes following the outcome of the OFT enquiry into overdraft charges.