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.



Personal finance

Why you should probably set up a lasting power of attorney

You will need someone to run your affairs if you become incapable of doing so yourself – that's where a lasting power of attorney comes in.
18 Feb 2020

Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020
Credit cards

Why it sometimes makes sense to buy using your credit card

There are several reasons to consider paying with a credit card, says Ruth Jackson-Kirby. Here are just a few.
13 Feb 2020
Equity release

Equity release: how to tap your house for cash

The pros and cons of releasing equity from your home compared with moving to a smaller one
10 Feb 2020

Most Popular

House prices

The biggest risk facing the UK housing market right now

For house prices to stagnate or even fall would be healthy for the property market, says John Stepek. But there is a distinct danger that isn't going …
17 Feb 2020
UK Economy

How the BBC can survive the end of the TV licence

The TV licence that funds the BBC is looking way past its sell-by date, says Matthew Lynn. Here's how it could survive without it
16 Feb 2020

Money Minute Monday 17 February: good news ahead for the UK economy?

Today's Money Minute looks to a week in which we get the latest employment and inflation numbers, plus retail figures for January and a slew of eurozo…
17 Feb 2020

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019