Santander said it has made the "difficult decision" to hike the monthly fee on its 123 Lite account from October, as well as changing some cashback rules around its accounts.
The bank said the cost of providing cashback has increased significantly since it was first introduced in 2012 and the Covid-19 pandemic, historically low interest rates and regulatory changes have affected the banking industry.
From October 27, Santander will change the cashback categories on its 123, 123 Lite, Private and Select current accounts.
The accounts enable customers to receive different levels of cashback on their regular household bills.
Under the changes, customers will receive 1% cashback on their communications bills, including phone, broadband and TV packages.
Currently, customers are able to earn 3% cashback on these bills.
Those paying via direct debit from their Santander account will get 3% cashback on water bills, instead of 1% currently.
Cashback on other household bills paid from these accounts such as gas, electricity and council tax will remain unchanged.
At the same time, the fee for the 123 Lite account will be increased from £1 to £2 per month.
The fee for the 123 current account will remain at £5 a month.
It is not the first time Santander has made adjustments to its flagship accounts.
It used to pay as much as 3% interest on its 123 deal - making it popular with savers looking for decent returns in the low interest rate environment.
The rate was halved to 1.5% in 2016. The interest rate was then cut again, from 1.5% to 1% in May this year.
Santander also previously announced that from August 3, it would be reducing the in-credit interest rate for its 123, Select and Private current accounts, from 1% to 0.6% on balances up to £20,000.
The bank said on Wednesday it will write to all customers during July and August to explain the latest changes.
It said it will also give alternative account options for the minority of customers for whom the changes mean the returns on their account will not meet the monthly fee.
Santander pointed out that despite the changes, its 123, Private and Select current accounts still offer customers both in-credit interest and cashback.
With customers able to earn 0.6% interest on in-credit balances of up to £20,000, this totals £119.60 per year, plus they can receive up to a maximum of £180 a year in cashback on bills - meaning an overall benefit of up to £299.60 per year for an annual fee of £60.
Santander 123 Lite customers can earn up to a maximum of £180 annually in cashback on their everyday household bill spending for an annual fee of £24.
Susan Allen, head of retail banking at Santander, said: "It has been a very difficult decision to make these changes to our popular 123 accounts but both the 123 and 123 Lite current accounts will continue to be good options for the large majority of our customers with the value they still offer."
A 123 calculator on Santander.co.uk is being updated for customers to see what they will earn under the new pricing.
