- Taking the axe to your pricey bills can save £5,000 or more a year
- By investing that cash you could have over £10,000 after 15 years
- Doing this every 5 years could make you almost £85,000 over 30 years
Laura Suter, personal finance analyst at investment platform AJ Bell, comments:
“It’s an annoying admin task that most feel like isn’t worth the hassle of dealing with, but cutting the cost of your monthly bills can lead to a tidy pot saved – and an even bigger pot if you invest it. Everyone would like an extra £5,000 salary next year and you can generate that yourself fairly painlessly.
“If you’re someone who doesn’t regularly shop around each time a contract needs renewing, offer period ends or savings rate matures you could be paying way over the odds for basic bills like broadband, energy, mobile phones and your mortgage. This is particularly the case when you include other areas, such as your TV package, your gym membership or other subscriptions you have.
“But if you tackle one area a month the mammoth tasking of overhauling your outgoings becomes much more manageable. And while lots of people dismiss switching providers, as they think it’s not worth the hassle to save a few quid, our figures show how switching and then investing that money can really pay off.”
The 7-step plan to a £5,000 income boost
Cancel your unwanted subscriptions
“Most of us have fallen victim to signing up for a free trial to something and then forgetting to cancel before the trial period ended – Amazon Prime is a regular culprit.
“The Citizens Advice Bureau estimates that the average Brit spends £640 a year on unwanted subscriptions, and some people don’t even realise they are paying for them. Check your bank accounts, including any old accounts you think you no longer use, and cancel anything you don’t use, don’t need or don’t want.”
Saving: Around £640 a year
Switch energy supplier
“Lots of people keep meaning to hunt for a better deal but never get around to it. The Government estimates that the average household could save £300 or more by switching, particularly if you’ve fallen on your energy provider’s Standard Variable Tariff, which is usually the most expensive rate.
“Around half of UK households are on these standard tariffs, so the chances are high that this includes you. Get your recent energy bill and go to a comparison site, which will work out the best deal based on your usage.”
Savings: On average £300.
Get a cheaper phone bill
“Lots of people sign up to a new monthly phone contract to get a new handset, but forget to switch once they’ve reached the end of that contract and paid off the cost of the handset. Also, when you come to renew each year or two, do you really need the latest handset or will your current one last another year?
“If your phone still works you can keep it and switch to a SIM-only contract, vastly cutting your costs. For example, Vodafone has a £8 a month SIM-only deal with 5GB of data if you sign up for 12 months, while the latest iPhone 11 will cost you £68 a month with unlimited of data on a 24-month contract. If you went for the slightly older iPhone 8 you’d pay £32 a month for 24 months.”
Savings: Based on the two options above, you’d save £720 or £288 a year by going SIM-only.
Get a new mortgage rate
“The average person on a two-year fixed rate mortgage is paying £439 a year too much, but 10% of people are paying more than £1,000 a year too much, according to Citizens Advice. This is because people sign up to a fixed rate deal and when that expires they move on to their provider’s Standard Variable Rate, which will be at a much higher interest rate. The impact of is bigger the larger your mortgage – but it will make a big difference to the total amount you repay over the 20 or 30-year term of your mortgage.
“Switching your mortgage is a biggie, in terms of hassle. You’ll need to go through a full affordability assessment and apply for a new mortgage, perhaps with a new provider if they are offering the best rate. However, in terms of cost per minute of hassle, there’s the potential to save a lot too.
“For example, a current top two-year fixed rate mortgage from Natwest has an interest rate of 1.41%, based on an 80% loan-to-value and a £200,000 loan over 25 years, but the Standard Variable Rate is 4.24%. On the fixed-rate deal you’d pay £791 a month, but on the SVR you’d pay £1,082 a month. In this example that means you’ve be paying out around £3,500 a year more. At that level of saving it’s surely worth considering.”
Savings: Very specific to your mortgage amount and current rate, but potentially thousands.
Switch savings – and bank account
“Savings rates are so low at the moment that many people don’t think it’s worth switching to a better deal. But the chances are that if you’ve had your account for more than a year you’ve fallen onto your bank’s measly standard rate. If you’ve got a lot of cash savings you can make a decent amount more money by getting a to rate account.
“The top easy-access account is from Shawbrook Bank, paying 1.41%*. If we assume your cash savings are getting just 0.1% at the moment – although it could be less – on £10,000 of cash that equates to a gain of £131 a year. You can get higher rates than this, albeit usually on smaller sums. M&S Bank, HSBC and First Direct pay 2.75% on its regular saver accounts, and you can pay in up to £250 a month with the first two and up to £300 a month with First Direct.
“Another option is to switch your current account to make free money. Banks will pay you an incentive to switch to them – M&S Bank will give you a £100 gift card* if you open an account before 6th January, while First Direct will give you £100 for switching. Each account will have specific requirements in order to get the free money, so make sure you stick to them. However, once you’ve met the requirements, stayed for the required amount of time and got your free cash, there’s nothing to stop you switching again.”
Savings: £100 for switching account, and potentially £100s depending on your cash savings
Cancel your pricey TV package
“People who’ve been with Sky or Virgin Media for a number of years will have seen their costs creep up. For those wedded to keeping the service, you can call up to negotiate a new deal, and it’s likely you’ll instantly save money – although often a new deal will mean signing up to a new contract for a year. You should also consider whether you’re using all the services and channels you’re paying for or if you can scale down your package.
“Another option is to ditch the service altogether and sign up to a streaming service, like Netflix or Amazon Video, and rely on that and Freeview. The cheapest membership for Netflix is £5.99 a month, so you could save a lot. Now TV is another option, as it has a lot of the series that are on Sky but you can buy a monthly pass and then turn it off when you no longer need it. The Entertainment pass, giving access to boxsets, costs £7.99 a month, while the Cinema Pass is £9.99 a month.”
Savings: Varies. As an example, if you go from paying £80 a month for Sky to £8 for Now TV, you’d save £984 a year.
|
Money saving tip |
Amount saved |
|
Cancel unwanted subscriptions |
£640 |
|
Switch energy supplier |
£300 |
|
Get a cheaper phone bill |
£288 |
|
Switch mortgage (based on £200,000 example) |
£3,500 |
|
Switch bank account |
£100 |
|
Cancel pricey TV package |
£984 |
|
Total (illustrative depending on personal circumstances) |
£5,812 |
What do I do with my savings?
“Now if you take all the money you’ve saved in a year and make sure you invest it (rather than splurge it), how much could you make? Let’s assume you’ve saved £5,000 – it will clearly vary depending on the individual, but based on the above this isn’t unattainable for some.
“If you invested that £5,000 and assume it grew at 5% a year after fees, you’d end up with almost £10,400 after 15 years, and almost £13,300 after 20 years. After 30 years your pot would have grown to £21,600.
“Let’s also assume that you do this finances overhaul every five years and save this amount each time. In that instance, after 20 years you’d have just shy of £45,000 in your investment pot – having paid in £25,000 over that period. After 30 years you’d have £84,734, based on contributing £35,000 over that period.”
*As at 30/12/2019.
