The UK current account market is not working for consumers, a report by the Office of Fair Trading (OFT) finds today.
The watchdog's study into the £8 billion industry found the "complexity and lack of transparency of personal current accounts makes it extremely difficult for individual customers to compare their bank account with other offers".
Therefore, the OFT argues, there was little incentive for consumers to switch.
Only six per cent of consumers switched accounts in the last 12 months one of the lowest switching rates in Europe.
The report found 81 per cent of banks' revenue from current accounts came from in unauthorised overdraft charges (£2.6billion) and net credit interest income (£4.1billion).
In 2006 the OFT calculated 1.4 million people pay over £500 per year in charges.
On average the banks earn £152 per active account.
The report found: "This can often mean potentially 'vulnerable', low income and low saving customers paying more as a result of incurring insufficient funds charges.
"The effect is not made any easier by a lack of simple mechanisms for consumers to control or opt out of an unarranged overdraft."
John Fingleton, OFT chief executive, said: "Personal current accounts are a vital gateway to effective participation in the economy. But this market is not serving consumers well.
"Customers lack the information they need to choose the best deal, and this in turn weakens the banks' incentives to compete. There is much the banks could do to improve how the market works, and we hope this report will encourage them to take steps to do so in the near future."
Phil Jones, Which? personal finance campaigner, explained the findings show there is now "no such thing as free banking".
"Most people have no idea how much they pay for their current account and the market is uncompetitive," he said.
"It's a Catch-22 situation - people aren't switching because there's little difference between the big banks' current accounts and, because people aren't switching, banks have little incentive to compete for customers. What's needed is greater transparency, competitive rates and for switching account providers to be made easier."
The OFT will now work with banks and consumer groups to promote more competition, but threatens if no headway is made more regulations may be necessary or a Competition Commission investigation.