Save money on your biggest bills by beating the loyalty tax trap

Loyalty hurts, as consumers everywhere are slugged for staying put with their bill providers. See how a switch can save you.

Many bills cost consumers more than they really need to. Picture: iStock.

Some call it a loyalty tax. Others – perhaps unfairly – call it a lazy tax.

In fact, it’s not even a tax, but it has a similar impact. The cost of being overly loyal to your bill providers can potentially set you back thousands of dollars each year.

Whether for mortgages, phone and internet, electricity, gas or insurance, the price of sticking with the same provider is increasingly being questioned as people get punished financially when they fail to shop around for better deals.

Mortgages are a big-ticket example. The average basic variable rate home loan today is 6.57 per cent, according to Canstar, while the minimum is 5.89 per cent and the maximum 9.29 per cent – a 3.4 percentage point difference.

If you have a typical $600,000 mortgage and switch to a lender with a home loan rate 1 per cent lower than your loan, you will save $375 per month, or $4500 a year, in repayments.

Sort My Money founder David Rankin says a lot of companies’ business models work on the fact that many customers are unlikely to shift.

BUSY, NOT LAZY

Insurers in particular have been criticised for giving the best deals to new customers while steadily increasing premiums automatically for their longstanding clients.

Rankin says loyalty taxes are easy to miss because people’s lives are busier than ever, and he does not like the term “lazy tax”.

“When you are living in real life with two partners working and three kids at home, putting time aside is the key, and it takes a lot of organisation,” he says.

“I don’t think it’s because people are lazy. I think ‘lazy tax’ is an insult to people. I would call it a ‘busy tax’.”

Sort My Money founder David Rankin

Combating loyalty taxes is part of taking control of your finances generally, Rankin says.

“You simply have to block out time in your diary – that is the solution to getting on top of the loyalty tax and getting on top of your finances, period,” he says.

“The only way to fix it is to put time aside and go through everything.

“Keep the appointment as if it is with an important person, a VIP, because you owe it to yourself. You are short-changing yourself if you pass up that appointment.”

Retail and services company Kogan’s chief partnerships officer, Ron Gelberg, says social media chatter about loyalty taxes has “spiked in recent months as the cost of living continues to bite”.

“While interest rates remain uncertain and Aussies cut back on essential spending to compensate, many are spending more than they need by remaining loyal to their current energy, insurance and mobile providers,” he says.

HUGE IMPACT

Gelberg says researchers have estimated loyalty taxes cost Aussies $4.5bn last year.

“By staying informed about market changes and shopping around, Aussies can save up to thousands of dollars each year by being savvy,” he says.

Gelberg says key areas to check for loyalty taxes include mobile phones, internet providers, credit cards, travel insurance and mortgages.

Telecommunications provider Dodo’s head of product for mobile, Ranga Dediwalage, says every spare dollar counts, and swapping providers is usually simple.

“We recently conducted consumer research and found that over a third – 36 per cent – of Australians have never switched NBN providers before, over a quarter have never swapped mobile providers, and nearly 90 per cent have said they haven’t changed providers to access a new customer offer in the last year,” he says.

Dediwalage says Dodo also found that 48 per cent of consumers do not read their bills each month.

“That’s something we’d really urge people to do,” he says.

“That way they can easily compare providers to see if they really are paying a loyalty tax or not.

“The best way to combat the loyalty tax is to shop around and compare providers – it’s as simple as that. Before you commit to changing providers, compare the new customer offer alongside the standard rate when the offer ends.”

Big savings on household bills can ease cost pressures elsewhere. Picture: iStock.

TIPS TO COMBAT LOYALTY TAXES

• Be proactive and shop around.

• Changing providers can feel like a hassle, but don’t fall into the trap of sticking with one.

• Consider using comparison websites, which have become more sophisticated.

• Regularly review your essential services, and set calendar reminders when minimum contract terms expire.

Source: Kogan

Originally published as Save money on your biggest bills by beating the loyalty tax trap