In the realm of consumerism, loyalty has long been prized as a virtue. Brands and businesses often reward faithful customers with exclusive discounts and perks (I’m looking directly at you, Virgin Velocity points), fostering a sense of connection and trust.
However, recent revelations have exposed a less savory aspect of loyalty – the “loyalty tax.” I’ve spoken about this topic a number of times. However, recent events have re-thrust loyalty tax into the spotlight.
Loyal customers often pay a big price for sticking with their service provider. Credit: Dionne Gain
This week Slater and Gordon announced investigations into potential class action lawsuits against insurers Insurance Australia Limited (IAL) and Insurance Manufacturers of Australia (IMA). These insurers allegedly implemented a “loyalty tax” by discreetly increasing base premiums for long-standing policyholders, offsetting the loyalty discounts initially promised.
This legal action underscores the potential consequences of the loyalty tax and its impact on consumers’ financial well-being.
While not a literal tax, the loyalty tax refers to the hidden premium that loyal customers pay for sticking with a brand or service. This phenomenon comes to light when businesses offer better deals and promotions to attract new customers, leaving existing ones to shoulder higher costs (why should a new customer get up to $4,000 cash back but you, a loyal customer aren’t even extended a 0.05 per cent drop in your interest rate when you asked incredibly kindly?).
From insurance providers to telecommunications companies and finance business, the loyalty tax can be observed in various sectors. Customers who remain with a company for years may unknowingly pay more for the same services compared to newcomers enjoying introductory rates, which from my perspective is frankly quite rude.
The financial implications of the loyalty tax can be profound. Consider the story of a homeowner with a mortgage, faithfully repaying it over the years.
Let’s use one of my Zella Money clients as an example – recently we got the chance to sit down with a beautiful couple who hadn’t reviewed their mortgage in the last 7 years, but assumed that because they were with one of the big four banks, they’d have nothing to worry about because surely, they’d just be getting what that bank was advertising online, right? Wrong.
Their interest rate was 6.55 per cent, the default for their product making their monthly repayments $4,216. We moved them to another of the big four banks, and their interest rate dropped to 5.87 per cent making monthly repayments $3,956 saving them $78,040 over the life of their loan (if interest rates don’t change, but we’ll keep a good eye on that for them!).
While you might not think that’s a significant difference over the course of 25 years, that $260 they were spending each week to stay loyal to a bank that wasn’t putting them first, if invested, could result in more than a million dollars additional they’d have for retirement. That’s significant.
It’s not uncommon for lenders to offer lower interest rates to attract new borrowers, while existing homeowners may find themselves paying higher rates because of their complacency, amounting to substantial sums over the life of the loan.
Similarly, long-term insurance policyholders may discover they’ve been paying more than new customers due to hidden premium increases. So, it really does pay to always have your finger on the pulse and make sure you’re getting the best possible deal.
Loyalty tax isn’t exclusive to one industry – it’s abundant in almost all industries where you as a consumer pay ongoing fees for a service.
To navigate the loyalty tax landscape effectively, we need to be a bit more proactive than we currently are when reviewing our budgets. Refinancing if you have a mortgage serves as a powerful tool to counter the effects of the loyalty tax.
By switching to providers offering better rates, consumers can potentially save significant amounts over time as I’ve shown you above. Exploring options beyond established players, such as online lenders and smaller financial institutions, can yield more competitive rates and terms – and ultimately help you to feel a little less of the pinch today, and a little more comfortable in the long term.
While refinancing holds promise, not all consumers can easily take advantage of it. Fluctuating interest rates and changes in property values can impact the feasibility of refinancing. Additionally, certain sectors, such as telecommunications, may require consumers to negotiate better deals or consider switching providers altogether.
Unfortunately, loyalty tax isn’t exclusive to one industry – it’s abundant in almost all industries where you as a consumer pay ongoing fees for a service.
Personally, I think if you’re going to look at whether you’re paying a loyalty tax or not you should broaden your horizons a bit further and look at all options available to you. Let me give you an example from my husband, who recently reviewed his mobile plan (ie his wife changed his phone plan) and went from paying $69 a month for 80 GB of data with Optus, to paying $40 a month for the exact thing with Amaysim – had he not explored other options, and stayed with his current provider he would have paid $59 a month (when I say the exact thing, I do mean that – did you know that Amaysim use the Optus network?).
I’m glad the conversation around loyalty tax has come up this week, because gone are the days of staying loyal to a brand (or employer for that matter!) for 30 plus years. To get the most bang for your buck, and keep your financial health in check it does sometimes pay quite literally to move and shop around.
The recent conversations happening in the media about Slater and Gordon and Insurance Australia Limited really highlights the importance of transparency and fair treatment for loyal customers.
To navigate the loyalty tax landscape, we really should be consistently assessing our current agreements, explore alternatives, and leverage our purchasing power to secure better terms wherever possible.
The loyalty tax serves as a cautionary tale, reminding consumers to remain vigilant and well-informed in their financial choices. While loyalty to brands is commendable, blind loyalty can come at a price. By understanding the loyalty tax and its implications, I’m hoping to inspire you to action, even small action, like reviewing your phone plan online this weekend, to ensure that your loyalty is rewarded instead of exploited – and perhaps we can all get a bit more bang for our bucks.
Victoria Devine is an award-winning retired financial adviser, best-selling author, and host of Australia’s number one finance podcast, She’s on the Money. Victoria is also the founder and co-director of Zella Money.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
For expert tips on how to save, invest and make the most of your money, delivered to your inbox every Sunday, sign up for our Real Money newsletter here.
Most Viewed in Money
"loyalty" - Google News
September 02, 2023 at 09:01PM
https://ift.tt/x4RZr8O
Loyalty a burden as faithful customers are taken for a ride - Sydney Morning Herald
"loyalty" - Google News
https://ift.tt/cwC1dp5
https://ift.tt/3N7HtiY
Bagikan Berita Ini
0 Response to "Loyalty a burden as faithful customers are taken for a ride - Sydney Morning Herald"
Post a Comment