A major review of the banking sector by the financial regulator has warned that established banks have a "captive audience" of loyal customers who are losing out because they are reluctant to switch or shop around for financial products.

Current account holders with major banks who open a savings account with the same provider typically earn between 30% and 50% less interest than they would if they switched to a so-called 'challenger' bank, the Financial Conduct Authority (FCA) found.

And while most current account customers contribute to their bank's profits, a small proportion pay significantly more than others. Around 10% of customers generate between a third and a half of profits from current accounts.

The stats, which are based on information from 45 firms across the market, have been published in an FCA update on its ongoing and wide-ranging review of UK banking.

Unhappy with your bank or want to know if you could earn more elsewhere? See our Best Bank Accounts and Top Savings Accounts guides for full help and our top picks.

Current account providers a 'captive audience'

The FCA report found that current account customers tend to automatically go with their provider when they get other banking products, rather than shopping around.

It found, for example, that:

  • 52% of personal current account customers with credit cards have one with their personal current account provider
  • 48% of personal current account customers with personal loans have one with their personal current account provider
  • 32% of personal current account customers with mortgages have one with their personal current account provider.

FCA chief executive Andrew Bailey said: “This is an important piece of work to help us understand the complexities of the retail banking market and how this may develop in the future.

“It provides more evidence that there is no such thing as free banking. In particular, this evidence will inform the work we are doing on overdrafts, so we can fully understand the potential effects of the significant action we are considering taking in this market.”

The FCA also said its analysis shows some of the reasons why retail banking markets remain highly concentrated.  Major banks have a "captive audience of customers who do not switch and can be cross-sold other products."

The FCA is asking for responses to this update of its Strategic Review of Retail Banking Business Models by 7 September. The next stage of the review will look at the future of banking, including what branch closure programmes mean for consumers and banks’ business models, and how technological and regulatory changes may affect the market.