May 12, 2005

At the beginning of this month, the government rebuked a recommendation by the Treasury Select Committee, to force credit card companies into using like for like, when it comes to working out interest and to standardize the interest free periods that are attached to some cards now.

This led to uSwitch.com sparking up an investigation, that found that with a lesser APR, can cost more than a credit card with a higher APR, an example being the Northern Rock credit card with interest rate of 9.1%, was found to cost more than the Smile credit card, which has a interest rate of 11.8%, when making purchases of £700 or over, this was worked out as having paid the balance over a period of 3 months.

The investigation done by the on-line and phone based comparison service, came up with the interest being charged came down to just two things, one being the duration of the interest free period on each of the cards, with 0 to over 50 days being the norm for; So this will bring in the second point, from which day does the bank start to add the interest on the purchases you have made, this has also to be added into the wider scheme of things, as you could be accumulating interest from the moment the transaction is done or from the day when the purchase shows up on your statement, hopefully you are starting to see the bigger picture.

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A spokes person for uSwitch.com a Mr Nick White, who is the head of personal finance, said “that by working the interest out in such different manners, it makes it harder for the customer to compare the that could be better for them, leaving it harder to pick the right credit card and it is extremely unfair”.

So how did uSwitch work it out? Well by basing it on the £700 of purchases that we already have quoted, they found that, when the balance was covered, by the due date on the next statement, it brought findings that if the debt was not paid off in full at the end of the every month, the Northern Rock credit card with it’s 59 interest free days, would then be charging interest from the date of purchase, meaning an interest charge of £11.20, compare that to the Smile credit card using the same method, you would only be looking at an interest charge of £11.14, not a big difference but take into account the higher APR that the Smile card holds, then the difference has a different look to it.

The figures uSwitch used was that by taking the £700 in purchases they divided it up like this, you have made a purchase of £500 on the very first day of the month, subsequently you then made a purchase of the further £200 on the first day of the second month, then when you have received your first bill from the first transaction you pay £300 towards your purchases, then when the second bill pops through the letter box, you will pay the outstanding balance off in full on this statement.