In the review, the watchdog said that despite consumers saving £928m between 2007 and 2011 from a fall in ‘unauthorised’ overdraft charges, the charges remain too complex.

It also concluded that the industry needs to make significant changes to ‘tackle longstanding competition concerns’.

Since the OFT last looked at current accounts in 2008, the major banks have increased their share of the market, entry by new competitors remains infrequent and consumers still rarely switch to an alternative provider.

Clive Maxwell, OFT Chief Executive, said: “Personal current accounts are critical to the efficient functioning of the UK economy. Despite some improvements, this market is still not serving consumers as well as it should.

“Customers still find it difficult to assess which account offers the best deal and lack confidence that they can switch accounts easily. This prevents them from driving effective competition between providers.”

The watchdog found, that despite some improvement, it is still confusing for customers to compare the costs of current accounts and leaves consumers with little confidence in the switching process.

The OFT said that a combination of a lack of competition, low levels of innovation and customer apathy in the face of unclear costs and a lack of diversity in the choices of current accounts available mean that the current account market is not working well for consumers or the wider economy.

Maxwell added: “There will be major changes to the personal current account market over the coming months. For these changes to improve the effectiveness of competition in this market, banks and building societies need to act now to improve the quality of service and value for money they provide their customers.

“The retail banking sector needs to become more competitive and customer-focused to ensure that further action by the competition authorities is not required.”

The OFT has recommended further changes to make the current account market fairer to the consumer. It has said the switching process needs to be more reliable and to improve the way in which unarranged overdrafts are provided.

Matthew Parden, Managing Director, Duncan Lawrie Private Bank said:

“The OFT announcement has come just at the right time to help customers overcome years of apathy and start to make the decisions that will ultimately lead them to a more prosperous and trusting relationship with their bank.

“When it comes to change in the industry, one move begets another. With fewer barriers for switching accounts, competition between banks will improve and hopefully with it, so will good service. Something that many high street banks seem to have misplaced in recent years.

“In the past people have been tempted by short-term rewards and incentives to move providers. But the motivations for customers are now very different with people actively seeking those banks that offer good customer service, reward customer loyalty and are still keen to lend.”

 A number of major developments are expected in the market over coming months, including the sale of branches from both Lloyds Banking Group and Royal Bank of Scotland, a new automated account switching service and the completion of existing initiatives intended to make it easier for customers to compare products and services.