The lazy tax

You could save £2,396 a year by shopping around

No-one likes to pay over the odds and there’s plenty of advice on how to pay less – from using discount codes to shopping in the sales.

But the biggest savings are typically less obvious, which is where the Lazy Tax, or loyalty penalty, comes in.

The Lazy Tax is the extra you could end up paying by not shopping around and switching to a better deal for everyday services – things like your broadband, mobile, savings accounts, home and car insurance, energy, credit cards, loans and mortgage.

The vicious circle goes something like this: you’re enticed by a cracking deal on, say, car insurance and so you jump without further ado. But each year the premium rises, for reasons that are rarely made clear, leaving you paying ever more.

“Loyal” customers are, in effect, punished for staying with the same provider for too long.

We’ve crunched the numbers and found that the average household* could save £2,396 per year simply by switching to better deals for these essential services.

Service Saving Explanation
Broadband £113 Using the cheapest basic broadband contracts offered by providers online, with the minimum periods for these contracts 12 months for BT and Sky, 18 months for EE and 24 months for Talk Talk. The saving of £113 comes from the difference between the cheapest basic broadband contract and the price customers pay after the initial contract period ends.
Car Insurance £131 Car insurance customers who’ve been with the same insurer for eight years can save nearly £131 by switching.
Credit Card £440 The average household credit card debt is £2,634, based on 2 cards per household with the average debt per card of £1,317. We compared the average household credit card debt with an average interest rate of 20.67% to a balance transfer credit card of 0% over 16 months. Paying the same amount of £80 each month per card, you could save £196 per card or £392 for 2 cards. At 20.67% interest and paying off £80 per month on a debt of £1,317, after 16 months you would still have a balance of £196 left to pay. Over 12 months the savings on 2 cards would be potentially £440.
Energy £110 This is the average difference between each supplier’s standard variable tariff and the cheapest deal for a medium dual fuel user paying by direct debit, calculated by Citizens Advice. The suppliers included are those published by Ofgem and analysis is based on the ‘big six’ energy suppliers.
Home Insurance £13 This figure is based on an average household, using data from the FCA and AA British Insurance Premium Index. £13 is the average difference between the initial price a customer pays, and the price offered on renewal after 1 year for a combined policy.
Mobile £528 This saving is for two phones in the household, based on customers of Vodafone, EE and Three. Customers who choose to stay on the same phone plan after the fixed deal ends are paying on average an extra £22 a month for a phone they have already paid off. This equates to £264 per year, per person and £528 per household.
Mortgage £878 This is the difference between the amount an average household pays after they are moved from a 2 year fixed mortgage to a Standard Variable Rate, and the amount they would pay as a new customer with a fixed rate. Even taking into account scheme fees, borrowers are better off by switching.
Personal Loan £86.96 We compared an average personal loan of £2,080 over a typical 3-year term, with the average rate of 15.20% compared to the lowest unsecured rate on the market, currently 7.9%. The difference in interest charges per year is £86.96, and over three years the total saving is potentially £260.07.
Savings account £96 The difference between interest earned on a 1 year fixed rate cash ISA and the interest earned when moved to a variable rate. Using the interest rates as published by the Bank of England, and the average balance in ISA accounts as published by HMRC.
Total saving per household £2,396

Methodology

finder.com based the calculations on a household of two adults, with a standard home insurance policy, using the average electricity and gas consumption for two adults, standard broadband, two mobile phones, two credit cards, two savings accounts, two personal loans, one car and a mortgaged home.

Mobile (including handset). This saving is for two phones; contracts including a SIM and the cost of the handset make up around two-thirds of the postpay mobile service market. The savings calculated were based on the amount overpaid when two adults in the same household remained with the same provider on the same contract after the initial contract period had ended and the handset had been paid off.

Energy. The saving is for an average household on a dual fuel policy paying by direct debit; it was calculated by Citizens Advice, which compared the average gap between the standard variable tariff available and the cheapest deal for a medium user on dual fuel.

Home insurance. Citizens Advice calculated the saving for an average household on a combined buildings and contents policy, if the bill payer chose to renew after one year, by comparing the average difference between the initial price a new customer pays and the price offered on renewal.

Savings account. Calculated by Citizens Advice using the average variable and one-year fixed cash ISA monthly interest rates from March 2017, as published by the Bank of England, and the average balance in ISA accounts as published by HMRC. Based on two people living in the same house, each with a savings account. The difference is based on the interest earned on a one-year fixed rate cash ISA, and the interest from a variable rate deal.

Broadband. The saving for broadband customers per year was calculated by working out the difference between the cheapest basic broadband contract and the price customers pay after the initial contract period ends, which worked out as a 43% increase on the initial price, according to Citizens Advice.

Mortgage. The saving available per household for an average standard variable rate payer. This was calculated by Citizens Advice by working out the difference between the amount an average customer pays after they are moved from a two-year fixed mortgage to a standard variable rate (SVR) deal, and comparing it with the amount they would pay as a new customer with a fixed rate. This figure is typically higher for first-time buyers.

Credit card. Finder calculated this using the average household credit card debt; our saving was based on two cards per household and the average interest rate. This was compared with how long it would take to pay off a debt of £2,634 on a 0% balance transfer credit card over 16 months.

Personal loans. The saving for personal loans was calculated by Finder using an average personal loan figure of £2,080 and comparing the average rate with the lowest current unsecured rate on the market.

Car insurance. The average saving for a driver who has been with the same insurer for eight years was calculated by Consumer Intelligence, which compared the price of that driver renewing their policy per year with the cheapest available on the market.

Sources used

Citizens Advice
Consumer Intelligence

Click here for more research. For all media enquiries, please contact:

Matt Mckenna
UK communications manager
T: +44 20 8191 8806
matt.mckenna@finder.com@MichHutchison/in/matthewmckenna2

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