The loyalty tax: why staying put costs you, and the yearly habit that fixes it

Most of us were raised to think of loyalty as a virtue — you find a good insurer, a trusted bank, an energy company that does the job, and you stick with them for decades. It feels sensible, and it saves the hassle of ever having to think about it. There's just one problem: the companies aren't loyal back. Across insurance, energy, banking and telecommunications, businesses routinely reserve their sharpest prices for new customers while letting existing customers' prices quietly creep up year after year. It even has a name — the loyalty tax — and retirees, who tend to value stability and dislike the fuss of switching, are the people who pay it most. The good news is that a single low-effort habit, once a year, claws most of it back. This article is general information only, not personal advice.

What is the loyalty tax actually?

The loyalty tax (or loyalty penalty) is the gap between what a long-standing customer pays and what a brand-new customer pays for the very same product. It works on inertia — the near-certainty that most people won't check, won't compare, and won't bother to move. ASIC's MoneySmart names the mechanism plainly: financial institutions may offer better rates to new customers while loyal customers pay higher rates or fees, which is exactly why it urges people to review a product each year and compare it to what's on the market (ASIC MoneySmart, https://moneysmart.gov.au/banking/savings-accounts). Retirees are the ideal target for it: on a fixed income where every dollar counts, but also the demographic most likely to have banked, insured and bought power from the same names for thirty years, and to feel that switching is more trouble — or more risk — than it's worth.

Where does it bite — and what should you do about each?

The loyalty tax turns up across most of your regular bills, and the fix is broadly the same in each case: find the current best offer, then haggle or switch (ASIC MoneySmart, https://moneysmart.gov.au/saving/simple-ways-to-save-money).

With home and car insurance, premiums have a habit of rising a little at every renewal even when nothing about your risk has changed, while new customers are offered acquisition discounts you don't get. The move is to treat renewal as a prompt, not a rubber stamp: get a couple of comparison quotes, then either ask your current insurer to match or beat them, or switch. One important caution, though — shop on price without cutting cover you actually need. Dropping your sum insured below the real rebuild cost to chase a lower premium is a false economy, as our piece on underinsurance explains.

Energy is the classic case, because electricity and gas plans drift onto worse rates over time. Use the free government comparison tool — Energy Made Easy, run by the Australian Energy Regulator for households in New South Wales, Queensland, South Australia, Tasmania and the ACT, or Victorian Energy Compare in Victoria — to see what you could be paying across every retailer where you live (Energy Made Easy, https://www.energymadeeasy.gov.au/). Retailers are also required to print a "better offer" message on your bill telling you if they have a cheaper plan for you and how to switch to it, so it's worth reading that line rather than skimming past it. The savings are real: the Australian Energy Regulator has found that moving off a standard (default) offer onto a competitive market offer can cut a typical bill by a meaningful double-digit percentage, though the exact figure varies by region and year as offers are re-priced — Energy Made Easy will show your actual saving for where you live today. (While you're at it, make sure you're getting the pensioner energy rebate — our concessions article covers that.)

Banking and savings carry the same trap. Loyal savers frequently earn less than the headline "new customer" rates advertised to everyone else, and a term deposit left to roll over automatically can renew at a rate well below what the same bank is offering new money — so check the actual rate you're getting against the current best, and ask for it to be lifted or move the money (ASIC MoneySmart, https://moneysmart.gov.au/banking/savings-accounts). If you still have a mortgage, lenders often price their existing borrowers higher than new ones — the so-called back book versus front book — and a phone call asking for a better rate, or a refinance, can be worth real money. And on phone and internet, old plans are often well above current deals for the same or better service, with number portability making a move straightforward.

How can you switch safely — the part that matters for retirees?

There's a catch worth taking seriously. Because retirees are known to be sitting on overpriced loyal-customer deals, they're also targeted by cold-callers and "switching services" promising to lower their bills. Some are legitimate; many are lead-generators or outright scams fishing for your account details. So follow two rules. First, do the switching yourself, through the provider's official website or app, or an official government comparison site — never by handing details to someone who rang you unprompted; and bear in mind that even commercial comparison websites are businesses that may make money from promoted links and may not cover every option, so the government tools are the safer starting point (ASIC MoneySmart, https://moneysmart.gov.au/online-safety/using-comparison-websites). Second, check the fine print before you move: watch for exit or break fees, term-deposit early-withdrawal penalties, and any differences in insurance cover, so a switch to save money doesn't cost you elsewhere. Done on your own terms through official channels, switching is safe; done in response to a cold call, it's a risk.

What do the worked examples show?

These show the habit at work — the audit that pays, and the cold call to refuse. They are illustrative only, not personal advice, and the figures are illustrative.

Consider Norma, 73, a single part-pensioner who has auto-renewed her home and car insurance, stayed on the same electricity plan and let a term deposit roll over for the better part of a decade. She sets aside one afternoon a year. On these facts the return is real: fifteen minutes on Energy Made Easy shows she could save well over $150 a year on power by moving off her stale plan (Energy Made Easy, https://www.energymadeeasy.gov.au/), a couple of insurance quotes let her tell her insurer "match this or I'll move," and a quick call lifts her term-deposit rate toward what the bank is offering new money. On these facts it is generally rational for Norma to make that afternoon an annual habit tied to her financial review, because the companies re-price constantly and this simply levels the field.

Now consider Robert and Helen, both 70, who get an unsolicited phone call from a "bill-reduction service" promising to cut their power and insurance costs if they just confirm their account details and date of birth. On these facts the call is the danger, not the saving: legitimate switching never requires handing personal and account details to someone who rang you unprompted, and this is a common lead-generation and scam pattern aimed at older people. On these facts it is generally rational for Robert and Helen to hang up and, if they want to check whether they're overpaying, do it themselves through Energy Made Easy and their providers' official sites — capturing the same saving without the risk (ASIC MoneySmart, https://moneysmart.gov.au/online-safety/using-comparison-websites).

What is the once-a-year loyalty-tax audit?

Here's the whole thing as a habit. Pick a date each year — your annual financial review is ideal — and run down the list: home and car insurance, energy, your savings or term-deposit rate, your mortgage rate, and phone and internet. For each one, find the current best offer, then either haggle or switch. The haggling script is simpler than people fear: "I've been a customer for years, I've found a better price, can you match it — or I'll move." You'll be surprised how often that alone works, because keeping you is usually cheaper for them than replacing you.

None of this means abandoning good service or chasing every last dollar. It just means recognising that loyalty is a virtue in your life, not a pricing strategy that rewards you. The companies review their prices constantly; reviewing yours once a year simply levels the field. For a retiree on a fixed income, a single afternoon spent this way is often one of the highest-return things you can do all year — and once it's a habit, it barely takes an afternoon at all.

Sources

• ASIC MoneySmart — Simple ways to save money
• Energy Made Easy (Australian Energy Regulator)
• ASIC MoneySmart — Savings accounts
• ASIC MoneySmart — Using comparison websites