Loyalty doesn’t always pay

You won’t save cash by sticking with the same firms year in, year out. Quite the opposite, in fact.


Loyalty doesn't pay, warns Citizens Advice. Companies penalise loyal customers by more than £4bn a year, according to the consumer group, which has launched a super-complaint with the Competition and Markets Authority, calling for the regulator to tackle the practice of overcharging repeat customers. "Regulators and [the] government have recognised the loyalty penalty as a problem for a long time yet the lack of any meaningful progress makes this super-complaint inevitable," says Gillian Guy, chief executive of Citizens Advice.

There are five essential products where loyalty is resulting in people being ripped off. Across mobile, broadband, home insurance, mortgages and savings, sticking with the same company for years will see you paying more than you would have if you'd shopped around: 80% of us are paying over the odds in one of these key areas, says Citizens Advice. The result is that the average household pays an £877 annual loyalty penalty.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

When it comes to insurance, you should never automatically accept the renewal offer your current insurer gives you, as it will often put up your premium and hope you don't object. At renewal time, take a few minutes to tap your details into a price-comparison site to see if you can get a better deal elsewhere. Planning ahead can help shopping for a home-insurance deal three weeks before your renewal date results in cheaper quotes than if you leave it until the day before, says consumer site Money Saving Expert.

Mobile-phone contracts are another easy way to overpay. When we start a contract, most of us get a new handset that we pay for in monthly instalments, alongside our usage bills. But if you let your contract roll on, it means you continue paying for a phone you have already paid for in full. Just two of the nation's seven main mobile providers (O2 and Virgin Mobile) automatically move customers onto a cheaper tariff once their handset is paid off, says Katie Grant in The Independent. The average one-year loyalty penalty on a mobile contract is £264, says the paper. If you don't want to upgrade your phone, then switch to a SIM-only deal for a fraction of the monthly cost.

Advertisement - Article continues below

Leave your broadband supplier

Make sure you also switch your broadband annually, in order to save an average of £113. You should also check if elderly relatives need help shopping around, as Citizens Advice found that people older than 65 were more than twice as likely as those under 65 to have been on the same broadband contract for more than ten years.

Your mortgage is probably your biggest financial commitment, so inertia can result in your paying considerably more than you need to. The loyalty penalty for sticking with your mortgage provider beyond the end of your fixed-rate deal is a mighty £439 a year. That's because mortgage providers will automatically switch you on to their standard-variable rate (SVR), which is likely to be far higher than the interest rate you had as part of your deal. It's estimated that 1.2 million mortgage holders are currently paying over the odds on their lender's SVR.

Finally, note that failing to regularly switch savings accounts costs the average person almost £50 a year, as you are missing out on better interest rates elsewhere.




A few ways to save tax before the end of the tax year

The end of the tax year is nigh. You have until midnight on 5 April to take advantage of various tax allowances or risk losing them.
3 Apr 2020
Personal finance

FCA proposes credit-card payment freeze and £500 overdraft for all

The Financial Conduct Authority has said that loan and credit card repayments could be frozen for three months, while those affected financially by th…
2 Apr 2020
Personal finance

Coronavirus: how to get your money back if your holiday is cancelled

Have you had an upcoming holiday cancelled because of coronavirus? Ruth Jackson-Kirby explains how to get your cash back.
1 Apr 2020
Small business

Furlough: what does it mean and how does it affect me?

Many companies have “furloughed” employees after they have shut down because of the coronavirus. But what does furlough mean and how does the scheme w…
30 Mar 2020

Most Popular


Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020

Oil shoots higher – have we seen the bottom for the big oil companies?

Just a few days ago everyone was worried about negative oil prices. Now, the market has turned upwards. John Stepek explains what’s behind the rise an…
3 Apr 2020
UK Economy

How the coronavirus pandemic is killing cash

Covid-19 is making a huge difference to the way we live, work and do business. One of its less obvious effects, says Merryn Somerset Webb, is to accel…
31 Mar 2020