Failing to switch mobile deal could cost you £100
If you fail to switch to a better deal once your existing mobile phone contract comes to an end your handset will likely end up costing you £92 more than it should.
Consumers are collectively missing out on some £355 million by overpaying for their handsets, according to research from consumer group Which?.
All too often, they don't realise they're paying over the odds because the provider merges the cost of their mobile tariff and the handset over the minimum term of the contract – which is typically 24 months.
Because this is not always made clear, "people don't know how much each element costs or when they have finished paying for their phone," explained Which?.
Executive director Richard Lloyd said: "Consumers are being misled and as a result are collectively paying millions of pounds each year for a phone they have paid off. All mobile phone operators should separate out the cost of the handset so people don't continue to pay after the contract comes to an end.
"Mobile providers need to play fair and ensure their customers are not paying over the odds."
O2, Virgin Media, Tesco Mobile and Utility Warehouse all now have tariffs that split the handset and airtime costs but Vodafone, EE and Three still charge one bundled price.
As an example of the difference between the two approaches, Which? compared deals from O2 and Vodafone for the iPhone 6.
The contract with O2 Refresh costs £49 a month for 5GB of data and unlimited minutes and texts but the company makes clear the handset element of the bill (called the ‘device plan') is £25, fixed for 24 months. After two years, the bill falls to £24 per month.
But a Vodafone deal, which comes with 4GB of data and unlimited minutes and texts, that costs £48.50 a month doesn't separate the handset and call plan. So once the two-year contract ends and the cost of the handset has been recouped by the company, the price of the deal doesn't change.
While O2 is to be commended from separating out the handset portion of a customer's monthly charge, it isn't always clear about the benefits of the Refresh tariff.
Last month, while promoting the fact that the first wave of Refresh customers were coming to the end of their 24-month contracts, O2's adverts stated that the network was "automatically halving bills".
As Moneywise pointed out to the company, this wasn't quite true. 02 wasn't halving anything – it was merely making sure it did not overcharge customers whose handset loans had been repaid in full.
While Ernest Doku, mobiles expert at uSwitch.com agrees that two-part tariffs, such as 02 Refresh, can help people save money, he said customers need to look harder for even better deals.
"The airtime cost after the phone has been paid off can actually be higher than opting for a SIM-only deal with an existing phone," he warned.
"For example, on O2 Refresh, once the handset has been paid off after two years, customers will pay £24 per month for unlimited minutes, texts and 5GB of data. But they could save £6 per month for 1,000 UK minutes, unlimited texts and 5GB of data with giffgaff SIM-only or save £1.50 a month for 5,000 minutes, 5,000 texts and 6GB of data with Tesco Mobile, also on SIM-only."
He added: "If you're happy with your handset and not in need of a new phone, moving to a SIM-only tariff at the end of the minimum term is the best bet. It's the easiest way to avoid paying off a phone at the end of a contract that's already been paid for."