The news comes ahead of a report by the Competition and Markets Authority next month exploring concerns that the big four banks do not offer good enough deals to consumers because of lack of competition.
The Santander 123 account, with its 3% interest on balances between £3000 and £20,000, seemed to offer a viable alternative, but the new charges will largely negate those benefits.
Santander said that the three million current account customers held an average of £12,500 in the 123 account.
"Most of our customers are using it for the interest rates and the average cash back will get is £9, which continues to be more than the fee," the spokesman said.
