How loyalty costs us thousands

When it comes to loans, super and insurance, simply sticking with your existing provider may be a costly mistake, writes

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,” consumer finance specialist Lisa Montgomery said.

“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 of 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 is 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 Finder.com.au 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.

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“You need to shop around, but unfortunately many Australians aren’t motivated enough to do so. It can take a significant rip-off to trigger that kind of reaction,” he said.

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 than they do to them. The dollars are better off in your pocket.”

Photo: DANNY AARONS