Banks make £152 a year in overdraft charges on every current account

The biggest investigation yet carried out into Britain's most widely used financial services product found banks make an average of £152 a year per customer - mostly as charges and interest earned on balances in accounts.

The Office of Fair Trading concluded that customers found it difficult to understand the charges and to compare different banks' accounts.

The OFT, which has already brought a High Court test case against "unfair" bank charges", currently under appeal, said the "status quo is not satisfactory" and threatened more action if banks did not overhaul current accounts.

John Fingleton, chief executive of the Office of Fair Trading, said: "This market is not serving customers 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."

The report found the current accounts industry is hugely profitable for the banks, generating £8.3billion, more than savings accounts and credit cards put together.

There are 54million active accounts, but almost nine out of 10 are paying interest of 0.5 per cent or less on credit balances. This allows the banks to make a huge profit by lending the money on at higher rates.

The OFT estimates that banks make more than £4billion a year from this, subsidising so-called "free banking". More than 6.6 million paid at least £100 a year and 1.4 million at least £500. In total 12.6million paid at least one charge. Charges, which can be as high as £39 a day, rose by 17 per cent in real terms between 2003 and 2007.

But despite widespread dissatisfaction only a tiny minority - six per cent - of customers switch banks, mainly due to "complexity and lack of transparency", according to the OFT.

Michelle Slade, of online price comparison website Moneyfacts.co.uk, said: "The big-name banks have for a long time relied on brand and customer loyalty. Many consumers think that it is too much hassle to switch accounts, particularly as many of us have numerous direct debits. However, nearly all institutions have a 'switcher' service."

The British Bankers' Association said: "Banks are keen to ensure customers can continue to use their current accounts for day to day transactions without paying fees - as more than four out of five do now. In the UK customers do not pay a fee for their normal banking services.

"This model is recognised as being one of the best in the world as elsewhere it is common to have to pay for cash machines, direct debits and more."