Banks' profits from current accounts have been slammed by the Office of Fair Trading. In a report published today, the OFT said the current account market is not working well for consumers, leaving them confused and frightened of switching. It pointed out that banks make four-fifths of their profits on current accounts from customers with insufficient funds in their accounts and from interest payments.

John Fingleton, OFT Chief Executive, said: "Customers lack the information they need to choose the best current account 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."

The OFT reported that a significant number of customers do not know how much they actually pay in bank charges, either before or after they are incurred. Over three-quarters do not know the credit interest rate of their current account, and even those that do lack the means to calculate the interest they forgo.

The complexity and lack of transparency of current accounts makes it extremely difficult for individual customers to compare their bank account with others. There is thus little incentive for consumers to switch - especially as people generally believe that it is complex and risky to switch accounts.

Mr Fingleton said the OFT will spend the coming months engaging with banks and consumer groups to try to achieve greater clarity, transparency and consumer empowerment in the current account market, either through voluntary change or, if necessary, through other routes, potentially including greater regulatory intervention or a reference of the market to the Competition Commission.

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