Brand Loyalty could be costing you £1,000 a Year
Citizens Advice have called for an investigation into the ‘cost of loyalty’ when it comes to energy and other household bills. Millions of UK customers are still paying more than they could be by sticking with their current providers for long periods of time. According to the Competition and Markets Authority (CMA), long-standing customers could be paying £987 more than they could be every single year.
When your contract with an energy supplier comes to an end, unless you switch supplier or move to a new contract, you will automatically be put onto your supplier’s default tariff. This is usually a standard variable tariff, meaning prices will fluctuate with the market, and could make your bills unpredictable. These default tariffs also tend to be the most expensive. Suppliers usually offer the best deals to new customers, whilst long-term customers risk being moved onto the most expensive tariff.
The CMA has raised concerns that this practice disproportionately affects the most vulnerable, and are currently investigating how this could be avoided. Citizens Advice echo this worry, and have already found that the groups most likely to be paying too much for their energy are people aged over 65, followed by those on a low-income. This might be explained by the fact that the best deals are easiest to find online, and older people continue to have the lowest levels of internet access in the UK. Additionally, brand loyalty tends to be stronger among older people, making them more reluctant to take their business to a new company.
The Co-op has recently become the first supplier to change this practice. Their default tariff is now fixed rather than variable, meaning that costs remain stable, and the annual bill will be around £100 cheaper. Despite this positive change, the tariff is still £251 a year more expensive than the cheapest deal on the market, assuming average usage.
With this in mind, it is perhaps unsurprising that more and more households are switching energy supplier each year. In 2016, 4.8 million people changed supplier, an increase of 26% compared to the previous year. In 2017, more still took the plunge – a huge 5.5 million people. Interestingly, a significant number – 28% of those who did switch – took their business to small and medium-sized suppliers rather than the ‘big six’. Despite this, the energy watchdog, Ofgem, estimates that 9 million UK households have not changed supplier since 2012. The reasons for this vary – according to a YouGov poll, a third believed there was no point in switching, since energy suppliers were essentially all the same.
Mobile Phone Bills
Energy suppliers are not the only companies caught up in these issues. A few major mobile phone suppliers have recently come under fire for overcharging customers who do not switch tariffs when their contracts end. Three, Vodafone, and EE have all continued to charge customers the same amount each month even when their contract has officially ended. This means that, in a number of cases, customers continued to be charged for handsets that they had already finished paying for. 36% of customers did not change their tariff when their contract ended. On average, these customers ended up paying an extra £22 each month. For high-end handsets, such as the iPhone 8 and Samsung Galaxy S8, these extra costs rose to around £38 a month. The Chief Executive of Citizens Advice, Gillian Guy, has spoken about these charges, calling them “clearly unfair”.
How to avoid the Cost of Loyalty
Millions of consumers are taking action to save money on their bills by taking the time to shop around and switch – you could too!
Set yourself Reminders
Companies sometimes depend on customers forgetting that their contract is coming to an end in order to increase their profits. Some mobile phone providers, for example, will not automatically get in touch with customers when their contract is nearing its end, so you could end up being moved to a standard tariff and paying more than your should. To avoid this, make sure you set yourself a reminder a week or so before your contract ends every time you enter into one.
Look for Deals at the best Time
Broadband providers tend to advertise their best deals at the end of the month or quarter, when they are attempting to increase their number of customers. If your broadband tariff is nearing its end, these are the times to shop around for your next contract. It is easiest to find these deals online using price comparison sites.
Compare Energy Deals regularly
Energy prices always seem to be in the news, meaning they can vary an awful lot from year to year. With tariffs changing so quickly, checking for the best deal every year is advisable. As with your phone contract, it is best to set yourself a reminder to do this. Switching suppliers requires minimal effort, but could save you hundreds of pounds every year, so it is absolutely worth spending some time on. Remember that there are alternatives to the ‘big six’ energy suppliers, who might actually have the best deals.
Read the Reviews
If you have not been a customer of a supplier before, it is a good idea to read customer reviews before making the final decision to switch. If the very cheapest deal is provided by a company which seems to have poor service, it could be worth considering another provider. Online review sites such as Trust Pilot can be a great source for reliable reviews.
Switching suppliers can be a great way to reduce your outgoings, but if you find yourself struggling to keep up with debt payments, it might not be enough. If you are worried about debt, you could consider a formal solution which will allow you to reduce your payments, such as an IVA or Trust Deed.
If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0808 2085 198.