The competition watchdog wants to crack down on overdraft charges and encourage people to switch current accounts, potentially saving customers hundreds of pounds a year.

The average monthly overdraft fee is close to £7, up from £1.15 in 2008 – and the big high-street banks are the worst offenders, according to Moneyfacts, the data provider. For example, the Halifax Current Account and the Santander 123 Account both charge £15 a month if you dip into the red by £300 for 15 days.

Rachel Springall, finance expert at Moneyfacts.co.uk, says: “Current account customers often turn to an overdraft in order to quickly and conveniently borrow money for a short term, but in recent years the cost has become extortionate. The average cost of a high-street bank overdraft is now six times higher per month than it was eight years ago, after having risen from £2 per month in 2008 to £12 today.”

The cost of overdrafts is also unlikely to come down after the fall in the base rate. So far, only Yorkshire and Clydesdale has cut the overdraft rate on its Current Account Tracker and Private Current Account from 11.02% EAR to 10.75% EAR.

Kevin Pratt, consumer affairs spokesman for MoneySupermarket, the comparison website, says: “It might seem reasonable to assume that, if the Bank of England has cut the cost of borrowing, then the interest charged on overdrafts will also fall. But it’s unlikely to happen. Banks are seeing their profits tumble because of the low interest rate environment, so they are doing what they can to shore up their income. Many will pass on a rate reduction to their standard variable rate mortgage customers. But for those with an overdraft, it’s a pretty forlorn hope.”

The charges for unauthorised overdrafts, where you slip into the red without first contacting your bank, are even higher. About a quarter of bank customers make use of an unarranged overdraft and banks raked in £1.2bn in unauthorised overdraft fees in 2014, according to the Competition and Markets Authority (CMA).

The competition watchdog has recently conducted an investigation into retail banking and banks will in future have to tell customers if they are going into an unarranged overdraft and allow a grace period in order to avoid charges. Banks will also have to set a monthly cap on unarranged overdraft charges, though they are free to choose the level of the cap.

The measures do not go far enough, according to some experts. Mike O’Connor, Chief Executive of StepChange Debt Charity, says: “These recommendations from the CMA will not do enough to get rid of excessive overdraft charges. There should be a cap on unauthorised overdraft charges and it must be set independently by the Financial Conduct Authority, not by the banks themselves. The largest banks already cap charges, but these caps vary widely and are still too high. The CMA’s recommendation may do little to change this.”

The CMA is also keen to encourage more people to switch bank accounts and wants banks and building societies to implement so-called Open Banking by 2018 so that customers can share their data securely with other banks.

Switching your current account can be an effective way to save money. Only 3% of customers switch to a different current account each year, yet the average customer could save £92 a year by moving to another bank or building society. The potential savings are even bigger if you use an overdraft. For example, customers who are overdrawn for one or two weeks every month could save £180 a year on average, according to the CMA.

You can switch accounts at any time, even if you are not in credit. Pratt says: “Anyone with an overdraft should remember that they can still switch accounts, so it’s well worth checking what else is on offer and moving account if a better deal is available. Provided you’ve kept to the terms of your existing overdraft and have a decent credit score, you should be able to find another bank that is willing to take your business, overdraft and all.”

But it’s not always easy to compare accounts because of the complex charging structures. Andrew Hagger of Moneycomms says: “It's really difficult for consumers to work out which account is the cheapest for going into the red because the banks make it confusing by all using different charging tariffs. Some charge interest whilst others have a daily or monthly fixed fee and some choose to use a combination of interest and monthly fee.”

The 1st Account from first direct offers one of the best deals on overdrafts. There are no authorised overdraft fees and no interest is charged on authorised overdrafts up to £250. The rate above £250 is 15.9% EAR. A £300 overdraft for 15 days would therefore cost just 33p a month. Or there’s the current account from M&S Bank. The bank charges no interest on an authorised overdraft up to £100 and then 15.9%. Again, there are no authorised overdraft fees. Post Office Money charges a slightly lower interest rate of 14.9%, but there is no interest-free overdraft facility