Diana Clement: Becoming money wise by shopping around

Are you throwing money down the gurgler through laziness? Is it easier to pour another wine and point the remote at the TV than find ways to save a few hundred dollars a year on your phone bill or electricity and gas?

According to Investit.co.nz we waste an astounding $1 billion of "lazy money" on lost interest alone.

Wouldn't that money be better spent on the boat, bach and the Beemer? Even better, invest and grow it.

It doesn't take a lot of effort to shop around for utilities. Just one phone call is enough in many cases to reduce your insurance, power, or telecommunications bills.

The first problem is inertia. Sitting pointing the remote at the TV is easier than doing anything active.

There is also a cognitive bias at work here called "post-purchase rationalisation". It means that no matter how bad our initial purchasing decision, our brain looks for ways to rationalise it. So we stick with the utilities we are already with.

Even if you don't want to switch to a new company it's a good idea to call your existing one every year or so and ask if they can analyse your bills and suggest a better tariff or package for you.

Telecoms is perhaps the area where most Kiwis should be looking for a better deal. Landline, mobile and broadband costs are eating up more and more money. Somehow we just need all those new services such as mobile data, TV on demand, high-bandwidth gaming and so on.

One of the difficulties with comparing telephone, mobile and broadband prices is that it requires a matrix to make a decision. Like many people I have my landline and broadband tied up in a bundle with one supplier to take advantage of discounts. Another provider might offer cheaper broadband, or more broadband data for the same as I pay, but balance that against the all-you-can-eat national phone calls I get and the decision becomes more complex.

Consumer's TelMe.org.nz website is really useful for comparing telephony costs. The site's wizard asks many pertinent questions such as whether you need slow, medium, fast, or turbo broadband speeds, how much data you use a month, if you want to be capped or pay extra if you exceed your cap, whether you make short or long overseas calls and so on. All of the information needed to complete this wizard can be found by looking at your last few telephone/mobile/broadband bills.

When I entered a number of different scenarios into TelMe for low, medium and high users, the price differential between cheap and expensive providers was about $90 a month, which adds up to a saving of $600 a year for someone on a high tariff who shops around.

As well as switching, it's also worth considering modifying your behaviour. In my case that means using Skype more in preference to a paid landline to mobile call. Skype calls can be made and received from Android, iPhone and BlackBerry smartphones - although it's not cheap if you exceed your mobile data cap.

The motivation for writing this column was the work that the Commerce Commission has just done about broadband and mobile switching. Switches between providers have become more common since phone numbers became portable.

Nearly 14 per cent of mobile customers switched provider in 2011, according to Roy Morgan Research, which carried out the survey for the Commerce Commission. Of those, 46.6 per cent switched for price reasons. Good on those customers. Their actions help to stimulate competition and drive prices down.

I'll keep my comments on comparing energy costs to the minimum. I would hope with all the advertising in recent years that New Zealand consumers are aware they can compare energy costs at websites such as WhatsMyNumber.org.nz.

Rob Collins, general manager of Credit Union Auckland, says most of his customers would benefit from such an exercise.

Banks rely on customers thinking it's too hard or costly to ditch them. That's the inertia factor again.

Once again the banking decision can be complicated. The best deal depends on each individual's banking habits. Even if an account has low monthly fees, honour, dishonour, or unarranged overdraft fees can soon add up. Bank staff, if asked, can review and structure customers' accounts to reduce fees and increase returns.

More tenacious customers can compare multiple banks' savings and borrowing interest rates at a number of websites including Interest.co.nz, Mortgagerates.co.nz or a new service from PriceMe.co.nz/finance. Sadly none have comprehensive wizards, although the PriceMe service does have some variables that can be altered easily to compare the cost over a certain number of years or the lifetime of the mortgage.

If you're interested in more than just price, then check out Canstar.co.nz and Canstarblue.co.nz, which rate banks on price and service.

Massey University's Dr Claire Matthews, who did her PhD on switching costs in banking, says the process of switching banks is easier than many think. Banks make it easy for customers to switch to them with a streamlined system for transferring direct debits and automated payments.

Given the level of dissatisfaction with banks, she is surprised at how few Kiwis switch.

Like other banking services, mortgages can be switched, especially if the loan is on a floating rate and not subject to break fees. Although the deals can be compared online, sometimes it's just easier to go to a mortgage broker who can compare rates for you using more sophisticated tools. Brokers rarely charge for their services because they take a commission from the lender.

Annette Kann, director of Roost Mortgages, says her first port of call is a client's own bank to ask if there is a better rate available. On a typical floating mortgage she would expect to get a 0.5 per cent reduction on the advertised rate, which equates to $500 savings a year for every $100,000 of mortgage.

If the bank doesn't play ball, Kann may suggest that clients switch mortgage providers. Usually the new bank would pay the lawyer's fees, which makes the switch cost-free, says Kann.

Borrowers can contact their own bank and ask if they are eligible for a better deal. A Kiwibank spokesman says: "We'll provide all the information and advice [and] illustrations of repayment plans."

There are other ways of saving money on a mortgage that don't involve switching. "For example, we provide reminders about being able to make overpayments on fixed loans within annual limits if they haven't done so already," he says.

Comparing insurance is a great idea. Some insurance companies, like the telecoms providers, have found ways to hold on to customers through discounts and special offers. Insurers such as Tower offer lifetime no claims bonuses. You pay an extra premium for it, but won't lose your no claims bonus if you have an accident. If you have an accident, you keep your no claims bonus, but you're stuck with the same insurer.

Another complexity with comparing car insurance policies is that some offer roadside assistance, which can save the policyholder from paying for a standalone breakdown service such as the one offered by the AA.

Many insurers offer discounts for three or more policies. It may be cheaper, for example, to move the house or contents insurance to another insurer, except that it results in the loss of this discount.

Beware, however, of switching life, mortgage protection, or income protection insurance policies. If you switch and you've had even the tiniest precursor of an illness since you took out the first policy, it won't be covered by the new one. Sometimes it's better to stick with the old policy even if it's not on the surface the best value for money.

Whatever you're switching, be it insurance, banks or telecoms providers, shop around thoroughly first, says Aimee Cringle, head of communications at budgeting service Christians Against Poverty (CAP).

"Make sure you know of all hidden costs, GST, connection fees, etc, before changing companies. The same goes for consolidation loans. Be very wary when looking into this."