Loyalty tax: Are you paying more than you should?

Sandy joined her local gym a decade ago. She was proud of her long-standing membership and content to pay the monthly $200 fee.

Imagine her surprise when a friend was offered a sign-on deal of just $150 per month for the first year!

Known as loyalty tax, it’s that extra amount you pay, effectively subsidising the sweetheart deals companies use to lure new customers.

It’s not really a tax, but it stings just the same. Whether it’s utilities or streaming services, insurance, digital media, or even your home loan, businesses are competing to entice new customers, and the rest of us are paying for it!

Discounts, freebies and gift cards are just some of the inducements. We get it; as they say, it’s harder to get new customers than to retain existing ones. But doesn’t loyalty count for something?

If you were to research everything your household subscribes to, you might be surprised at the sign-on deals your loyalty is subsidising.

Exercise your consumer superpower

The answer is to exercise your consumer superpower and shop around. You could:

• Ask your supplier to match competitor deals. If they won’t, well, you know what to do!
• Refinance loans. Beware the fine print, however, early exit fees and set-up costs for new loans may outweigh the benefit of switching lenders.
• Review utilities companies, solar feed-in arrangements, internet and phone providers and ask about their best plans.
• Contact streaming services, news, digital book and magazine subscriptions and inquire about packages.
• Compare insurance companies, home security monitoring services, roadside assistance memberships, etc.

Comparison websites like Finder.com.au are a great place to start. Just remember, when considering a sign-on deal, make sure you’re across the details. Check for:

• Automatic renewals that attract higher rates
• Gradual premium or membership fee increases over time

How Sandy saved $2,230 a year

Ultimately, Sandy left her gym and signed up with a competitor. The annual $500 saving inspired her to make further changes. These were:

• New gym: $500 annual savings
• Reduced streaming service package: $960 annual savings
• Bundled car and contents insurance into one policy: $320 annual saving
• Cancelled 2nd credit card with fee: $450 annual savings
• Total annual savings: $2,230

Delighted by the result, Sandy consulted her financial planner. They helped her rework her budget, finding even more savings, and recommended an investment account that offered bonus interest provided she made no withdrawals.

Don’t let loyalty cost you

Loyalty can feel warm and fuzzy; it can also feel safe, so switching to an alternative brand can seem daunting.

Think you’re paying a loyalty tax, but you’re anxious about changing providers? Reach out to a financial adviser and get them to do the sums.

Sandy did, and she hasn’t looked back. Now, she’s well on her way to saving for a home and enjoys a free monthly coffee and muffin at her local café, where her loyalty is genuinely appreciated.