LONDON (Reuters) - The consumer watchdog called on Wednesday for a shake-up of the 8 billion pound market for personal bank accounts, saying existing arrangements were not working well enough for consumers.

The Office of Fair Trading (OFT) said that much of banks' revenues from current accounts was derived opaquely, and that many customers do not know how much they pay in bank charges or how much interest they earn on balances in credit.

This, it said, weakened lenders' incentives to compete in a market that generates more revenue for Britain's banks than savings and credit cards combined.

"In the view of the OFT, the status quo is not satisfactory," the watchdog said in its report.

It said consumers' poor understanding of the market, combined with a lack of attractive offers from banks, meant there was little incentive to switch providers -- even though some are paying far more for their accounts than others.

The watchdog said its report had asked banks to calculate how much a hypothetical customer would have to pay in a set scenario, including exceeding an agreed overdraft limit, and found charges varied from zero to 260 pounds.

The watchdog said 1.4 million people paid over 500 pounds in charges a year in 2006 -- many of them vulnerable and low-income customers paying fees as a result of having insufficient funds. On average, banks make 152 pounds per current account.

"Personal current accounts are a vital gateway to effective participation in the economy. But this market is not serving consumers well," OFT Chief Executive John Fingleton said.

"Consumers lack the information they need to choose the best deal, and this in turn weakens the banks' incentives to compete," he said on Wednesday.