Pick a card - then try to guess the rate

Take two different credit cards with identical interest rates, take them into the same shop and buy exactly the same item with each of them. They would charge the same amount of interest, right? Wrong. The costs can actually vary significantly.

A new report published this week laid bare the baffling and illogical world of credit card interest calculation. It calls for the industry to adopt a single, fairer and more transparent approach to calculating and charging interest on credit cards.

The report from online bank Egg - regarded as one of the industry's "cleaner" players - comes after the Consumers' Association revealed there are currently no less than 10 different methods of calculating interest being used by providers today. Different card companies start and stop charging consumers interest at different times. Some - including Egg, of course - don't begin to charge interest until the date a purchase reaches the customer's credit card account, while others such as the Halifax One Card start the interest clock running on the day of the purchase.

Egg asked Dr Robert Hunt, deputy director of the Isaac Newton Institute at Cambridge University, to investigate the different methods. He devised a fairly simple, realistic scenario: a credit card holder makes two purchases - one of £300 and one of £150 - spread over two monthly statements. The customer only repays part (£100) of the first statement but then pays off the second statement in full on the due date.

He found that the Egg card would charge a borrower £4.05 interest in this scenario, compared to the £6.40 that a rival bank's card would charge. This is despite the fact that the APR on the rival card is 11.9% - lower than the Egg card's 13.9% APR.

Confused? You will be.