Money
Loyalty tax: whatever happened to rewarding customer loyalty?
Did you know that sticking with your regular utility providers is likely costing you a fortune? Here’s how to stay on top of sneaky loyalty taxes.
By Robyn Peña-Lopez
If you’re a long-term customer of any service provider – be it electricity, gas, mobile phone or broadband – you might not notice that you’re getting charged a ‘loyalty tax’.
Contrary to the popular belief that customers are rewarded for sticking around, the truth is that you’re probably shelling out more for less than newer customers are getting. Not to mention missing out on better offers from other providers that could potentially save you a stack of money.
That’s because most businesses focus on bringing in new customers, luring them in with shiny deals to entice them to sign up. But their existing customers? Not so much – you’re already on the hook.
What is loyalty tax?
Loyalty tax, also known as ‘lazy tax’, starts when you sign up with a new provider for an initially great ‘special offer’ deal. But before you know it, the special introductory offer expires and you end up paying more than their average price. Sneaky!
“More than 80 per cent of Australian households in the National Electricity Network (NEM) could move to a cheaper electricity plan if they shopped around”, according to Australian Competition & Consumer Commission (ACCC).
In fact, according to a 2023 survey from iSelect, Aussie households could potentially save about $18.7 billion annually by switching to different household service providers. On the list: $3.2 billion in electricity, $4.1 billion in broadband and $1.5 billion in gas, excluding other premiums such as health and car insurance.
It’s an easy trap to fall into. As prices sneak up over time, many people tend to just go along with it. Either because they don’t notice the increased rate; don’t think it's a significant enough amount to bother questioning (beware: even small amounts add up over time); or simply because staying feels easier than switching to a different company (hence the ‘lazy tax’ moniker).
Stay ‘new’
The good news is, you can take advantage of any ‘special offer for new customers’, simply by becoming a ‘new customer’ yourself. You can shop around for a better rate then approach your existing provider to match it – if they won’t, you can go and be an actual new customer somewhere else.
You can do this as often as it makes financial sense. It’s probably not as much work as you think it is and once you get into a rhythm, you’ll realise it’s worth the bother. Here’s a 5-step plan you can try.
1. Keep track of your current providers
By creating a simple list of all your monthly plans and when payment is due, you’ll have an overview of where your money goes. And if you notice you’ve been with a provider for 2 years or longer, you can assume that a loyalty tax is probably creeping onto your bill each month.
2. Clarify discounts and their time period
It’s important to know when any introductory rates expire and how much you’ll be paying when they do. Then you can start to compare deals ahead of time so you don’t miss out on potential savings.
Pro tip: set a calendar reminder of expiration dates so you can keep track. It’s important because the rate charged after the introductory period can be hefty. Don’t get bamboozled by discounts that are too good to be true!
3. Compare your bills with other advertised rates
Grab your utility bill and upload it to a reliable comparison website such as iSelect to check if you’re paying more than you should be. Make it a habit to compare different suppliers regularly to ensure you aren’t paying unnecessary charges.
4. Request a lower rate
Next, check if your existing suppliers will match the lower rate you found during your search. Let them know that you’re planning to look for other options and see if they will give you a better deal.
5. Make the switch
If your current supplier can’t or won’t match the deal you’ve found elsewhere, it’s time to switch. Switching is probably easier than you think. For example, energy suppliers will generally do the hard work for you as part of their introductory offer.
Feature image: Canva/Kampus
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