Current account charges are too complex and competition among providers is poor, the Office of Fair Trading said on Friday, as it told banks to take further action to improve their offerings.

The OFT said "significant further" changes to current accounts were required as it warned that the market was not "working well for consumers or the wider economy", but decided against a full referral to the Competition Commission. It will conduct another review in 2015.

Banks make £139 for every active current account, the OFT said. Charges vary widely – someone who goes overdrawn by £50 for three days without authorisation can pay anything from £15 to £36, depending on the provider.

The amount made by banks has dropped from £152 in 2008, but over the same period concentration of accounts among the large providers has increased.

New entry remains infrequent, overdraft charging structures are complex, comparing products is challenging and consumers lack confidence in the switching process, the OFT 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," OFT chief executive Clive Maxwell said.

"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."

He warned the banks they needed to become more competitive to avoid "further action" by the competition authorities.

Which? executive director Richard Lloyd said: "This is the latest damning verdict on how badly people are still being let down by the banking industry.

"Everyone – consumers, the government, leading bankers and now the OFT – seems to agree that big change is needed in banking, and that much greater competition on the high street is urgently needed to make the banks work for customers, not bankers."

He added it was disappointing to see current account providers avoid immediate action by the competition authorities. "If the reforms underway do not quickly make a real difference to consumers, the whole of retail banking must be referred to the Competition Commission without any further delay."

Among the major changes to the market set to take place over the coming months are a new switching service, promised by banks as part of the review by Sir John Vickers' independent commission on banking.

From September banks will be given a time limit of seven days to switch a customer's current account and must transfer direct debits and standing orders "seamlessly". At the moment it takes an average of 18 days.

Lloyds Banking Group is also in the process of selling 632 branches to the Co-op in a move that is expected to bolster competition by creating a bank with a 7% share of the current account market.

"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," Maxwell said.

The OFT last conducted an analysis of current accounts in 2008, and in its latest analysis found there had been some improvements since then, notably a £928m-a-year saving from the fall in unauthorised overdraft charges. Yet the providers of current accounts have increased their revenues from arranged lending charges by £432m, while revenues from debit interest increased by £107m since then.

The OFT also provided examples of reductions in unpaid item charges (Upic), which occur when a customer exceeds an arranged overdraft limit. Barclays lowered its Upic from £35 to £8 in August 2008; RBS lowered its from £38 to £5 in October 2009; and Lloyds TSB lowered its from £20 to £10 in December 2010. HSBC has not changed its Upic level, which can be up to £25.

"One of the big problems is that it is incredibly hard to compare current accounts as there are now totally different ways of charging for overdrafts," said financial expert Andrew Hagger of MoneyComms. "Some charge daily fees and others interest on overdrafts, and all of them charge fees for other things such as unpaid items. This is actually more complex than overdrafts used to be."

Recent banking scandals and IT meltdowns have already persuaded a record number of people to switch acccounts in recent months.

Credit unions – small, usually locally based savings groups – attracted almost 20,000 new accounts in the last six months of 2012, according to the Move Your Money campaign, while ethical banks Triodos, Ecology and the Charity Bank have all reported a jump in customers.

Building societies saw 78,000 customers sign up for savings accounts in the third quarter of 2012 alone.