How loyalty to companies is costing us thousands

Consumer finance specialist Lisa Montgomery says loyalty doesn’t always equal savings.Source:News Corp Australia
Consumer finance specialist Lisa Montgomery says loyalty doesn’t always equal savings.Source:News Corp Australia

LOYALTY to financial services businesses is potentially costing every consumer thousands of dollars a year.

From banks and insurance to superannuation and foreign currency transfers, many Australians rarely switch providers, research shows.

"Broadly, Australians have always thought it's just too hard to move," said consumer finance specialist Lisa Montgomery.

"As we have become busier and busier as a society we put it even further down the pile," she said.

However, the cost of being too loyal can be significant:

• A home loan interest rate just 0.5 percentage points higher costs $1200 a year on a typical mortgage, while fees can add $350 a year to that.

•Paying 2 per cent for super fund management fees instead the widely-available 1 per cent adds $1000 a year to someone with a $100,000 fund balance.

•Insurance companies often provide 20 per cent discounts to new customers, potentially saving hundreds of dollars across car, home and contents policies.

•Sending money overseas typically costs hundreds of dollars more through a major bank because of poor exchange rates and fees.

Duncan Khoury, head of marketing for international money transfer business World First Australia, said the cost of sending $25,000 to Britain more than $1300 more expensive through a major bank than a smaller player such as World First, and sending the same amount to the US cost an extra $1180.

"From a consumer's perspective, it's quite outrageous," he said.

Mr Khoury said loyalty was a result of inertia, big bank marketing budgets and capturing customers early through things such as school bank accounts.

"It's ingrained from a young age and is extremely difficult to shake," he said.

Mr Khoury said the best insurance deals were usually offered to new customers. "Once they can get a customer in, they are confident they can keep them."

Roy Morgan Research last month reported that more than three-quarters of general insurance customers didn't approach other insurers when renewing, while a separate survey by discovered that almost half of us stick with one bank for our financial needs.

Mr Khoury said people should research their options through comparison websites and talk to workmates and family.

"You need to shop around but unfortunately many Australians aren't motivated enough to do so. I can take a significant rip-off to trigger that kind of reaction."

Ms Montgomery said consumers were unlikely to be penalised for moving a few products to a different provider.

"Financial institutions have been great at convincing us that loyalty equals savings - but quite frankly, when you peel that back the saving is minimal, if any at all," she said.

"Remember folks that you are a number, and the numbers mean more to you then they do to them. The dollars are better off in your pocket."

Topics:  budgeting editors picks money

News Corp Australia

Stay Connected

Update your news preferences and get the latest news delivered to your inbox.

Sheep dairy is top class

GOOD STUFF: Awassi Queensland has been recognised for its sheep milk products for a second year running.

Lockyer sheep dairy recognised by country's best chefs

Next generation of yogis learn in the Lockyer

TUNING IN: Sarah Weber runs her kids yoga class once a week, each term from her Cura Life Studio in Gatton.

Yoga teacher Sarah Weber shares the benefits of starting yoga early.

All's Wells for Madi after third national silver medal

RISING STAR: Lockyer District Athletic Club's Madison Wells celebrates her latest silver medal success with mum Sharyn and dad Lee in Melbourne.

Madison Wells won silver at the Australian Multi-events titles.

Local Partners