A FINANCIAL watchdog has warned that UK customers are being clobbered with overdrafts for getting in the red.

Financial Conduct Authority (FCA) boss Andrew Bailey said: “There is no such thing as free banking", as the watchdog revealed 30 per cent of banks’ profits are from fees.

Most customers contribute to their bank’s profits — but just one in 10 generate up to half of all contributions.

The FCA said: “A small proportion pay significantly more than others.”

People may see banking as 'free' but in reality they may forego money they could have received by getting a better deal elsewhere.

The watchdog explained: "Major banks have a captive audience of customers who do not switch and can be cross-sold other products.

Together they have a large share of the PCA (Principle Component Analysis) market, currently over 80%, giving them considerable competitive advantages.'

The watchdog’s review into retail banking will heighten calls for a clampdown on unfair fees.

Mr Bailey said the FCA was already considering taking “significant action”.

It includes plans for more transparent information about overdrafts that it believes will save £200million a year.

The FCA is also considering a number of measures to make it easier for customers to manage their accounts, including mobile alerts warning of potential overdraft charges and stopping the inclusion of overdrafts in the term "available funds".