Barclays has bowed to public pressure and scrapped a decision to stop its customers from withdrawing cash at post offices following a barrage of criticism.

The bank’s U-turn came after it emerged that Barclays bosses would be questioned about the decision by a committee of MPs who had labelled it “a petty, penny-pinching move” and were hours away from publishing a highly critical report on the controversy.

Barclays said it had been “persuaded to rethink” its decision, and would now keep the cash withdrawal facility after all.

Barclays’ announcement on 8 October that it was pulling out of an agreement allowing its bank customers to withdraw cash from post offices for free led to an immediate outcry.

It was the only bank to scrap over-the-counter cash withdrawals at Post Office branches, with 28 other UK banks signing up to a new deal that meant millions of people can continue to benefit from free access to everyday banking services, including withdrawals.

Responding to the U-turn, Rachel Reeves, chair of the cross-party business, energy and industrial strategy (BEIS) committee, said: “Barclays have finally read the writing on the wall and caved to public and political pressure to dump this woefully misguided policy.”

She added: “I met with Barclays [on Wednesday], and as a committee we were very keen that they should face proper public scrutiny for their actions. The BEIS committee has called out this egregious behaviour towards customers, and we welcome the fact that Barclays has belatedly realised the game is up on this policy.”

Barclays’ original decision – which would have taken effect in January 2020 – appeared to be linked to a sizeable rise in the bank-funded fees paid to postmasters for providing these services. They will receive about three times more remuneration than under the previous agreement between the Post Office and the banks.

The Guardian understands that Barclays would have saved only about £11m per year by scrapping cash withdrawals at post offices, representing about 0.3% of the £3.5bn it made in pre-tax profits last year.

Matt Hammerstein, chief executive of Barclays UK, was due to be the first banking boss to face MPs over the move on 6 November.

This all comes against a backdrop of concern that as bank branches and cash machines continue to close, many people, particularly in rural or deprived areas, could find themselves unable to access cash.

Barclays has closed at least 481 branches since 2015, according to the consumer body Which?

In a statement, the bank said it would now “commit to full participation in the Post Office banking framework from the renewal date in early 2020, including maintaining the cash withdrawal facility”.

Jes Staley, the Barclays’ chief executive, said that alongside the change, it had planned a comprehensive package of measures to ensure that none of its customers would be without access to cash, but he added: “Our decision, however, provoked a great deal of public and private debate. We have listened very carefully to points that have been made to us by ministers in the government, by MPs, and by interested charities and consumer advocates.

“Ultimately, we have been persuaded to rethink our proposals by the argument that our full participation … is crucial at this point to the viability of the post office network.”

He said the bank had “concerns regarding the sustainability of relying on this model in the longer term, but would now maintain a full service, including cash withdrawals using a debit card, for the next three years.”

Frank Field MP, chair of the Commons work and pensions committee, said Barclays had realised “they would not get away with cutting off yet more of their own customers after poleaxeing branches in many areas”.

He added: “Such a move might have been all right for Barclays’ directors, pulling in huge salaries – the CEO took home nearly £4m last year – but it was shameful to even suggest it for people who depend on having access to their own cash over post office counters.”

The Post Office, meanwhile, said it was “delighted” Barclays had decided its customers “can continue to have easy and secure access to vital cash withdrawal services at our 11,500 branches”.