Thousands of Santander customers will be hit by an extra £1 monthly charge from May 11. The bank has warned customers holding its 1|2|3, Select and Private accounts that they will be charged £5, up from £4, next month as part of the retrospective payments system. It means account holders will now be charged £60 a year instead of the previous £48.

Santander's 1|2|3 account is among its most popular, despite being currently closed to new customers, because of the cashback it offers on household bills. It contributes 3% towards water bills and 1% towards energy and council tax and also pays 2% Annual Equivalent Rate (AER) on balances up to £20,000.

Customers at one of the UK's biggest banks will also experience higher borrowing costs from mid-May, with interest rates on overdrafts over £500 rising from 27.06% to 28.33% for Select and Private accounts.

Andrew Haggar from MoneyComms said the changes to the 1|2|3 account weren't likely to be a dealbreaker for banking customers, with the rise "covered by the cashback on bills for most people".

But Rachel Springall from MoneyFacts told The Sun that loyal account holders could still feel "disappointed" about the hike.

She suggested it was "vital [that] users keep on top of their outgoings and calculate if the account is still worth having", adding that it could be the "perfect time to switch and ditch".

Other banks with similar schemes include Zopa Bank, which gives customers 2% cashback on direct debits and the NatWest reward account which offers account holders up to £36 per year.

Santander last changed its 1|2|3 account in 2021, when it cut the monthly payment from £5 to £4.