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What are loyalty taxes and how can you avoid them?
Even the best bargain can be tainted by loyalty taxes if left long enough. Here’s how you can avoid them.
What are loyalty taxes and how can you avoid them?
Even the best bargain can be tainted by loyalty taxes if left long enough. Here’s how you can avoid them.
Loyalty taxes aren’t something consumers think about all that often, but they’re something that regulators are becoming increasingly concerned about.
In 2018, ACCC chair Rod Sims called out the prominence of loyalty taxes in the banking sector.
At the time, Mr Sims said, “We see loyal customers paying more than customers who are prepared to, and able to, challenge their bank or electricity provider and ask for a better price.”
“While companies are not breaching the law with this conduct, they are imposing a ‘loyalty tax’ on their customers who will then need to spend more time than they would like searching for better deals.”
Speaking to nestegg, Wealth Within chief analyst Dale Gillhams puts it in colourful terms.
“There are two things that tend to creep up on you very slowly: the first is old age, while the other is loyalty tax.”
“I know there are times when I have looked down at my waistline and thought, ‘Where are those extra few centimetres coming from?’ but I have also opened my mail only to question the annual renewal for my health and life insurance thinking the same thing.”
“It seems we are all guilty of paying loyalty tax, which is not a tax imposed by the ATO but rather overinflated price increases we pay to insurance companies or service providers for remaining loyal.”
“You would think we would be rewarded with a better deal for being a long-term customer, but sadly providers are not loyal to us,” he lamented.
Mr Gillhams said that regardless of whether we’re talking about private health insurance, mobile phone plans or credit cards, “it is up to everyone to ensure you are getting the best deal every time as your renewals rollover” because the price tag of loyalty taxes grows more quickly than most people think it does.
Even if any single loyalty tax seems small, taken together they add up fast and rise even faster.
How can you avoid paying too much in loyalty taxes then? Mr Gillham has a few ideas.
“Firstly, no matter how convenient it may be, don’t roll over your insurance policies and/or other contracts automatically. Instead, set up an alert for 60 days in advance of when they are due to renew and then shop around online for the best deal.”
“If you find a better deal, contact your current provider to see if they will match or beat the offer,” he said.
For longer-term expenses like mobile phone plans, he suggested setting a reminder to shop around every 12 months.
“Alternatively, when you sit down to do your tax return each year, spend some time going through all of your utilities and insurance bills and what it is costing you annually.”
Mr Gillham admitted that this approach might be a little more time-intensive, but he said: “It has the potential to save you hundreds of dollars in unnecessary charges and premiums each year.”
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