In short:

The Commonwealth Bank will hold off on plans to migrate customers to a new account that would see them charged a $3 fee to withdraw cash in branches and post offices.

The move, announced on Tuesday, angered the bank's customers and was widely criticised by both sides of politics.

What's next?

The bank says it will contact affected customers over the next six months to discuss their needs.

The Commonwealth Bank has paused its plans to charge customers a $3 fee to withdraw their own money at bank branches around the country.

The bank — which is Australia's biggest — announced on Tuesday that it would charge customers who had a "Complete Access" account a $3 fee to withdraw cash at bank branches and post offices by changing their accounts to the "Smart Access" option.

The bank had been under pressure to scrap the fee altogether from both sides of politics, with the federal government describing it as a "terrible decision" that was a "kick in the guts" to customers.

In a snap media conference on Wednesday afternoon, the bank's head of retail banking services, Angus Sullivan, apologised for poorly communicating the decision.

"We feel that we didn't get the communication right on this, and we want to take a more individual approach," he said.

Mr Sullivan said the bank would pause the migration of its customers over to its "Smart Access" accounts for six months for around "10 per cent" of its customer base who are using the assisted fee withdrawal service, or would be "worse off" from the changes.

He explained that for the remaining 90 per cent of customers who remained on a "Complete Access" account, the migration to a different account would put them in a "better position".

In particular, the bank said customers would be paying a lower monthly account fee, with those with a Complete Access account paying a $6 fee, while those with a Smart Access account only paying a $4 fee.

The monthly account fee is waived if certain concessions are met, including if $2,000 is deposited into the account each month, or if customers have a pension.

The Commonwealth Bank has previously said customers with a "Smart Access" account wanting to withdraw cash can avoid the $3 fee by using ATMs.

The move by the bank to charge the fee followed a decision by the Bendigo and Adelaide Bank in November, which requires customers to pay $2.50 to withdraw their cash at a branch.

Westpac, NAB and ANZ have all separately confirmed to the ABC that they do not charge customers a fee to withdraw cash in person at their branches.

Political pressure not a factor

Asked whether pressure from the federal government had changed the bank's mind, Mr Sullivan denied the suggestion.

"This is based on us listening to our customers and making sure that we do the best that we can by them," he said.

"We feel we didn't get the communication right on this, so we've paused, and we want to take a different approach.

"So it's very much from listening to our customers and making sure that we adapt our approach as is helpful."

Mr Sullivan also denied that the move was a "backflip" and was done to avoid customers from leaving the bank.

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Speaking in Sydney, Treasurer Jim Chalmers said he was "pleased" at the bank's announcement, after meeting with CEO Matt Comyn on Wednesday morning.

"[The government] consider the changes flagged yesterday to be unacceptable, we made our views very clear," he said.

"The changes that were flagged and that were announced are not acceptable or appropriate.

"I welcome the change of heart … and I welcome the fact that they are having another look at this."

The Finance Sector Union described the "partial backflip" by the bank as "offensive" and that it "should never be implemented".

"Claiming it's a pause for six months is also not an appropriate response," national secretary Julia Angrisano said in a statement.

"[Mr Sullivan] admitted they are still committed to the change. The Commonwealth Bank are not being genuine today and can't be trusted on the issue of fees."

How did the Commonwealth Bank get here?

On Tuesday, the Commonwealth Bank announced it would begin shifting customers with a "Complete Access" bank account over to a "Smart Access account" from January 6 next year.

Both those accounts are considered everyday transaction accounts, meaning they are a type of account Commonwealth Bank customers are using day-to-day — whether that be to buy a coffee, do their grocery shopping, or have their pay deposited into.

The reason for the shift, according to the bank, is to replace the older account with its "newer transaction account", after reviewing its "everyday account offerings".

But the fury from customers came from a fee discrepancy between the two accounts, which the bank calls an "assisted withdrawal fee".

Customers with a "Complete Access" account currently do not have to pay anything if they want to withdraw cash at a Commonwealth Bank branch, at Australia Post's Bank@Post service, or over the phone.

But customers with a Smart Access account — which is the bank's most popular everyday account — are required to pay $3 should they want to get cash out at those same services.

In other words, customers with a "Complete Access" account will need to pay $3 for this in-person cash withdrawal service once they are shifted to a "Smart Access" account.

However, Mr Sullivan said the changes only affected a small number of customers who still held a "Complete Access" account.

While he did not disclose how many customers still held this type of account, he said that around 10 per cent of the bank's customer base would be migrated to the newer account, and 90 per cent of those would be "better off or the same" by moving to an account that charges a lower monthly fee.

As at June 30 this year, the Commonwealth Bank had 11.2 million personal and small business customers — meaning there were approximately 1.2 million "Complete Access" accounts, and around 120,000 would be affected by the change.

Mr Sullivan said that customers who would be shifting to the lower monthly fee account would be contacted by the bank, and said they could discuss their options with the bank if they did not want to move.

"For the remaining customers, we are changing our approach and pausing the migration. Instead, we will contact these customers over the next six months to discuss the most appropriate product for them given their needs," he said.