How to save thousands and get out of a loyalty tax
Switching your home loan, energy company, telco brand or credit card provider can save you thousands. See the steps you can take to get a better deal.
National
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They’re the little fees and higher premiums companies slug their most loyal customers, and they can add up to an extra $17,000 on a modest $250,000 home loan, it has been calculated.
Aussie consumers are now paying so-called “loyalty taxes” on an astonishing range of products and services – from home loans and credit cards to insurance, phones, energy, streaming services and even gyms.
A generation ago, the price was the price and everyone paid it, but increasingly companies have moved to more complex pricing models, whereby customers who “set and forget” end up paying hundreds or even thousands of dollars more every year, while those who seek better deals get rewarded.
New research by Finder found loyalty to a particular telco could cost a consumer an average of $373 per year, while staying with the one energy company could cost $168, and remaining with the one credit card company could be an extra $141 outlay annually.
In just those three categories, the “loyalty tax” was costing the average Australian $682 per year.
“It’s shocking how many Aussies are missing out on a better deal, despite rampant financial stress,” said Taylor Blackburn, personal finance specialist at Finder.
“Clearly, loyalty doesn’t pay when it comes to financial products. From energy to mobile phone plans to your credit card, it’s always worth comparing and shopping around for a better deal.”
But many of us remain inordinately loyal to our service providers.
A YouGov report from 2022 found three in four of us intend to remain with our current provider, and only 15 per cent are considering switching to another brand, while when it comes to power bills, Finder data shows only 13 per cent of Aussies have switched companies in the past six months.
Some of the biggest “complacency fees” are paid on home loan products, with the Australian Consumer and Competition Commission finding borrowers with loans greater than 10 years old are on average paying interest that is 104 basis points above what new customers pay.
“As borrowers’ loans get older, the gap between what they pay and what borrowers with new loans pay widens,” the ACCC report stated.
Bank surveys have found fewer than one in five borrowers intend to refinance or switch lenders. Most are loyal – and pay for it.
Illustrating the point, the ACCC found a borrower with a home loan of $250,000 who does nothing will end up paying over $17,000 more during the life of that loan, compared to a customer who switches to a loan with a lower rate.
That difference adds up to serious money. It’s been estimated Australia’s big four banks earn some $3 billion a year simply by charging loyal customers more.
According to money expert Joel Gibson, big Australian businesses now see two types of customers: Price Chasers, who always go after the best deal, and Sleeping Beauties, who don’t bother.
“Businesses do not like to wake the Sleeping Beauties, because they’re making maximum margin off those people,” he said. “So you want to be in the Price Chasing group, not the Sleeping Beauty group.”
Of course, that’s not always easy. There’s research time and sometimes paperwork to deal with, and call centre waiting times – where “higher than normal call volumes” seem, somehow, to be a permanent state of affairs. With regard to home loans, the ACCC found switching lenders can “take many weeks, or sometimes months, to complete”.
But according to Mr Gibson, there can be smarter ways to get a better deal.
If you are trying to negotiate a better deal with a company, Mr Gibson said, “you need to be prepared to walk”.
Fellow money expert Steve McKnight acknowledges that negotiating a better deal will not always lead to a successful outcome for a customer, but it’s always better to try.
“Yes, you might have the inconvenience of calling up and maybe waiting on hold for a little while, but a dollar saved is worth more than a dollar made, because you don’t have to pay tax on the dollars you save,” he said.
For the Becker family, despite finding some ways to save money, the family-of-four say it has become “increasingly challenging” to do so.
“We have had several interest rate increases that have nearly doubled our monthly repayments. All costs have gone up,” mum Irene said.
“It feels like the cost of living doubled within a year. We have not been able to pay down any of our mortgages. We’ve rather been drawing from it.
“To help buffer the massive increase in costs we host two internationals’ students as home stays, which is tax free income. Having two students helps to cover the food and utilities bills for the whole family.”
“But even with those strategies we have no way to save, so any further increases in cost of living, risk of losing a job or other financial emergency could mean that you are very close to falling behind on your repayments or worse.”
Like a lot of money habits, our propensity to negotiate a better deal, or otherwise, comes from our parents, Mr McKnight said.
“Whatever we experience growing up becomes our very definition of normal, so if someone watched their parents negotiate and haggle to get a good deal, they’ll believe that that’s normal and par for the course, but if your parents accepted what they got and didn’t want to rock the boat, didn’t want to be embarrassed, then that’s your definition of normal and you probably won’t go to the effort and see it as worthwhile to do so. You kind of emulate what they teach you – unless you decide to acquire different skills,” he said.
COMPARISON WEBSITES
There are dozens of comparison websites online which aim to help you find the best deal. But be warned – some commercial sites are constrained by their partnership agreements with existing companies, rather than the market as a whole.
Online subscription service which monitors energy bills and initiates a switch whenever savings can be made.
Commercial site with comparisons for credit cards, insurance and banking products.
Commercial site with comparisons for energy, mobile phones, home internet, cars, household appliances and more.
Online club which monitors savings across insurance, home energy and banking products.
Commercial site with comparisons for insurance of various kinds, and home energy.
Government site that compares retailers for electricity, gas and combinations of the two.
Government site linking to energy price comparison tools and websites in each state and territory.
Commercial site with comparisons for banking products, health insurance, home energy and mobile plans.
Commercial site with comparison tool for home energy
Commercial site covering multiple insurance categories.
Government site (Commonwealth Ombudsman) with health insurance policy comparison tool.
Commercial site with comparisons for banking products.
Read related topics:Cost Of Living
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