The OFT believes customers are reluctant to switch bank accounts
Personal current accounts are not working well for consumers, the Office of Fair Trading (OFT) has said.
The OFT said the £8bn industry was not clear enough, with many consumers not knowing their account's interest rate or what they paid in bank charges.
The complexity of the market meant that consumers were less likely to switch banks, the watchdog said.
But the banking industry body said the OFT's figures did not reflect the true costs banks faced in offering accounts.
The OFT said that much of the banks' revenue from current accounts was "derived opaquely".
It said some 81% of banks' income came from charges to customers with insufficient funds in their accounts (£2.6bn) or interest payments (£4.1bn).
The report found that more than three-quarters of customers did not know the interest rate of their current account, while many did not know how much they paid in bank charges.
The complexity and lack of transparency of current accounts made it hard for customers to compare accounts from different banks, the OFT said.
As a result, just 6% of customers surveyed by the OFT had switched accounts in the past 12 months.
John Fingleton, chief executive at the OFT, said: "Personal current accounts are a vital gateway to effective participation in the economy. But this market is not serving consumers well."
He told the BBC that the OFT would now urge the banks to come up with ideas on how they would make information clearer to customers.
"If the banks do not play ball, it will be very difficult to avoid regulation in this market," he said.
There are about 64 million accounts in the UK, of which 54 million are thought to be active.
The OFT believes the banks earned the equivalent of £152 per active bank account in 2006 - that is more than savings and credit cards combined.
But the industry body, the British Bankers' Association (BBA), said that the £8bn was just what it collected and did not reflect the cost of offering the bank accounts.
"We are disappointed that the report presented only revenues without taking into perspective any of the costs being incurred in respect of running accounts," a spokesman said.
And Catherine McGrath, director of current accounts at Lloyds TSB, said: "Over a million people joined Lloyds TSB last year and research that we conducted showed that of people who had switched their current accounts, 79% found it to be easy."
Spot the cost
The report says that the most common form of bank account was the model that suggested it was free when the customer was in credit.
But the OFT report suggested that these customers do pay, in the difference in the interest that the banks make on customers' money and what they pay back in interest.
"This model has a cost for consumers, which is not always apparent to them, in the form of interest foregone," the report said.
Mr Fingleton said it was clear that current accounts were not free but it was difficult to see where that money was made.
"It is a type of stealth payment," he said.
But Angela Knight of the BBA said people did not want to pay up-front charges for direct debits, cash machine withdrawals and statements.
"There are more than 80% of people who do not pay any fee for banking services. It is second to none to anything in the world," she said.
She said people should expect to use current accounts for daily expenditure and savings accounts to gain interest.
The report comes as the OFT continues an investigation into the fairness of overdraft charges.
The OFT has been given legal confirmation that it can rule if bank overdraft charges of up to £35 are fair or not.
But eight banks are appealing against the initial decision in the High Court - that the OFT has the jurisdiction to assess whether fees are unfair.
In 2000, a report to the chancellor, called the Cruickshank Report, concluded that consumers were not adequately informed about financial products, they found it difficult to compare accounts and competition was not operating effectively.