Loyalty is all well and good, but it can come back to bite you
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.
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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
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.
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.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.
Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.
Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping, among many other titles both online and offline.
What is Rachel Reeves’s plan for growth?
The best cities to live in for quality of life, salary and rent
