Jill Kerby

WATCH OUT:  PENALTIES APPLY FOR ALL SORTS OF SWITCHES

Have you ever delayed cancelling a service contract because you’d have to make a penalty payment that would just cost too much?

Me too. I’ve delayed changing both broadband mobile and electricity/gas suppliers in the past because I was tied into those contracts – and would absorb too much of the savings I’d make leaving early. 

These are two of the most common contracts that Irish consumer want to change, but they certainly are not the most expensive to leave. 

Getting out of a fixed rate mortgage or investment policy can amount not to tens or hundreds of euro if you leave early, but thousands of euro.

In a recent survey, the price comparison and switching services company Switcher.ie found that about a third of us have no idea if an exit penalty would apply and 41% are unsure about the amount.

According to Switcher.ie, who investigated the actual cost of switching (see tables), energy companies, to give them their due make the switching costs “clear for consumers, with most suppliers charging a flat fee of €50 per fuel if a customer cancels within the minimum term, which is typically 12 months.”

It gets more complicated (as I discovered) when you try to switch out of a broadband and mobile phone contract and investigation “found that the majority of broadband and mobile phone providers will require customers to pay the monthly charge for the remainder of the term.”

Whereas a €50 or €100 (for dual fuel contracts) penalty might seem worth the effort if you can save up to €360 over the 12 months of a new, cheaper electricity/gas provider, the exit cost of moving your broadband and mobile packages – see below- can amount to up to nearly €300, which wipes out the advantage of the switch (not to mention the a sharp spike in blood pressure and hair loss, say legions of frustrated switchers.)

The combination of “costs involved, lack of transparency and understanding about exit frees” means that consumers will be at a serious financial disadvantage unless they make themselves more aware of what they are signing up to from the outset, say Switcher.ie. 

That should always be the case when buying big ticket financial purchases like mortgages and investment policies.

Anyone considering taking out a fixed rate mortgage needs to pay as much attention to the exit clauses as they do to the interest rate they will be charged:  breaking such a contract before the term is over can result in up to six months worth of penalty fees. (This might be waived if you switch to a higher variable rate. The only reason you would do this is if you were certain rates would go down over the remaining period of the old fixed contract.)

Unitised investment policies typically include exit penalties for the first five years of the contract and encashing early will often result in a capital loss of at least 5% in year one, falling to 1% by year five.  But many life and pensions companies also impose MVA’s or market value adjustment clauses which flatly decline to release your funds if there have been ‘detrimental’ investment conditions, say after a stock market crash.

Whether it’s a simple switch to a new electricity provider or an expensive mortgage. 

Read the contract. Then read it again.

Table showing early termination fee per broadband provider

Source: Switcher.ie - Data correct as at 22nd August, 2016. See table above – Early termination charge table based on broadband providers non-discounted basic entry level home broadband and home phone bundle. Comparison is based on a customer leaving the broadband provider with six months left on their contract. Magnet broadband bundle listed is a “no contract” package.

Table showing early termination fee per mobile phone provider

Source: Switcher.ie - Data correct as at 22nd August, 2016.

Do you have a question for Jill?  Please email her directly at jill@jillkerby.ie or write c/o this newspaper.