Current accounts 'not working well'

UK economy will fall into recession, the European Commission predicts

The current account market is not working well for consumers, a study from the Office of Fair Trading (OFT) said.

A "significant number" of customers do not know how much they pay in bank charges, either before or after they are incurred, the OFT said.

It added that the complexity and lack of transparency of current accounts made it "extremely difficult" for people to compare their account with others.

The report found that current accounts generated revenues of £8.3 billion for the banks during 2006 - more than the revenues from savings and credit cards combined.

But it said the bulk of this money was derived "opaquely" and 81% came from just two sources, with charges for having insufficient funds generating £2.6 billion, while net credit interest income brought in £4.1 billion.

It added that there also appeared to be "substantial cross subsidisation" between consumers who incurred charges and those who did not, with "vulnerable, low income" consumers often subsidising those on higher incomes.

OFT chief executive John Fingleton 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."

But the British Bankers' Association said the OFT report did not take into account the cost of providing the services.

It said: "The OFT's market study contains many good points but some of its numbers are difficult to rationalise as they use assumptions and averages and, importantly, do not recognise the costs of providing the services.

"UK banks offer a wide range of products and services and are committed to providing their customers with high quality service and accounts to meet all their financial needs. The retail banking market is open and competitive."