When loyalty costs

A super complaint launched by the Citizens Advice Bureau has found that loyalty costs UK consumers an additional £877 per annum; when compared to what new customers would pay for the same services. Their research found that five broad areas were affected by hiked renewal costs:

  • Mortgages;
  • Cash ISAs;
  • Insurances – income, sickness and protection insurances but particularly household insurance;
  • Broadband contracts;
  • Mobile phone contracts.

When loyalty costs mortgagees

A survey in late July by This is Money found that in some cases a building society was charging long-standing mortgage customers £4,020 more per year than new customers that signed up for the building society’s cheapest two-year fixed mortgage. Another building society brand was close behind charging an extra £3,156 to existing customers. Even the bank charging existing customers the least difference between charges for new customers had added an additional £1,788 in mortgage costs for loyal customers.

Many mortgage customers are getting caught-out by taking up good fixed-rate deals when they are new to a lender; only to find that standard variable rates – which are due at the end of the fixed-rate term, are much higher.

In fact; the gap between lenders best fixed-rate deals and standard variable rate has quadrupled in the past six years.

Typically banks and building societies offer fixed-rates from between two to five years. The same study found that the bigger the deposit in the first place 20%, 35% the greater the leap in cost from fixed-rates to variable rates.

We would recommend speaking to a mortgage specialist financial advisor about mortgage rates, especially if a mortgage has reached the end of its fixed-rate term.

Read our tips on how to prepare to meet an IFA.

However as regards mortgages, understanding any penalties eg early redemption fees, the mortgage terms and current property value are worth checking before booking a consultation with a mortgage specialist.

When loyalty costs cash ISA customers

Money Saving Expert found in June that banks offering loyalty reward Cash ISAs, were offering loyal customers dismal interest rates when compared to new customers. One bank was offering existing customers between 0.7% to 1.0% interest rates on a Cash ISA whereas, a competitor’s best buy instant Cash ISA was offering 1.3% interest rates to new customers.

Of course; the other benefit of ISAs is that investors do not pay tax on savings interest; or savers pay reduced tax on interest rates on investments including Capital Gains tax.

Cash ISAs are not the only Investment Savings Accounts that can be held. Investors can also save in Stocks and Shares ISAs which; provide investors with a way to invest individual company shares and money in a tax efficient way. Also; unit trusts, investment trusts, open-ended investment companies (Oeics), government bonds and corporate bonds. Can be included within these Stocks and Shares ISAs.

We would recommend speaking to an investment specialist IFA about savings and investments. Sharing financial goals with an IFA will help the investment specialist to tailor advice to help achieve a client’s financial objectives. Read our guide on how to prepare to meet an IFA here.

When loyalty costs insurances customers

Though the main findings of the super complaint launched by the Citizens Advice Bureau were against hiked home insurance prices, protection insurances also do not favour loyal customers. Many customers that purchase life insurance along with their mortgage may be paying more for their life insurance (level term life insurance) than they would if they had bought insurance from a different provider.

One such customer cancelled their existing policy, buying it again as a new customer from the same provider. In so doing they reduced their premiums to £9.00pm from £23.00pm; making an overall policy cost saving of more than £2,000.

If medical conditions have changed (for the better) after taking out protection insurances – income, sickness or medical insurances, some quite significant cost savings could be made. See our article on quitting smoking.

Again; we would advise that all life and protection insurances are reviewed regularly with an insurance specialist IFA. Preparing plan details including terms and premium costs will help the IFA to quickly see if the protection is right for the client and if any savings can be made.

Please call our team of Chichester-based IFAs on 01243 532 635 to arrange a consultation.

To discuss pensions, retirement and investment plans (including ISAs) with us please ask to speak to Richard Smith.

To discuss Life, serious illness, equity release (to provide for retirement income) and income protection insurances please ask to speak to Hamish Gairns.

To discuss mortgages and mortgage insurances please ask to speak to James Mayne.