At this time of year lots of newspapers, websites and other media will be reporting you can save lots of money by just price checking all your regular payments. I decided to see how easy it would be. I set myself a goal of making €1000 in savings in 60 minutes. I accepted I was never going to implement the products there and then. The purpose was to see if I could find the savings and if so would I be enthused enough afterwards to implement them.
There was one simple rule, I could not use any of the knowledge, tools or contacts I have as a financial planner to get the quotes. All I could do was sit at my laptop for an hour. I did this one morning over the Christmas holidays when I was home with the kids (4 of them). I got up early but still was disturbed 3 times and had to listen to “Cailou” from my sons ipad for the second half of my research.
Did I succeed? Yes I did, kind of.
I managed to identify savings of in excess of the €2750 in the first year but it did take me 96 minutes just to do the research. But what struck me most was how difficult it was. Google is great and can get you to the websites you are looking for but then it gets very complicated.
I am in the financial services business but this exercise has taught me as an industry we seem to be wrapped up in this bubble of assumption that people have a clue about what we talk about. Some of the language and jargon used on the websites was, to say the least, confusing.
The quote process was a unique experience and very cumbersome at times and other times just downright frustrating. There is nothing more annoying then filling out an online form with lots of personal details to find yourself staring at a “processing” message on a screen for 90 seconds before it crashes. Well actually maybe there is something more annoying and that is filling in the form hitting submit to be given a “thanks we got everything we need now and we will contact you shortly”
Of all the areas the one I found most confusing was the health insurance industry. Then I found the health insurance authority website. I knew about it before and have advised clients to have a look at it (we don’t do health insurance in prosperous) so I was delighted when it came up on Google because it meant I didn’t have to break the rules of my experiment.
The website was extremely well put together, maybe too well. For me, it was a case of information overload.
For example, I wanted the website comparison tool to show me plans that offer semi-private rooms in a private hospital. Prices for one adult ranged from €597 per year to €5082 per year.
It was at that point I said I need help on this one, these two plans are not the same and I am not sitting in some hospital accounts office in 6 months hit with a massive bill for something I thought was covered and going through a financial crisis at the same time as a family medical crisis.
I felt this for most of what I was doing. In areas that I work I kept thinking to myself “but somebody who has no idea about this stuff wouldn’t know they are missing this point” or “that this plan isn’t suitable for them” and then areas we don’t specialise in I couldn’t help but wonder “what am I missing here?”
I accept the value of what I am about to say is incredibly diluted because we are independent advisors ourselves but I feel the best way to do this process is to use independent professionals.
I really have little fear for independent advisors having gone through this process. I was using fictitious details and still felt I would love to be able to speak to somebody on lots of the areas I looked at that are not our core business. The online world has come a long away but it certainly is not there yet.
Lets take a look at what I did. I took a fictitious couple aged 42. He smokes she doesn’t. They are married with 2 kids and live in a 4 bed semi in Naas, valued at €320,000. They have a mortgage of €200,000 which unfortunately isn’t a tracker. They have a personal loan they got from their bank to buy a car and a credit card with a Christmas hangover of €1500 on it. They have about €10,000 in savings and two very small pensions. Their jobs don’t pay into the pensions for them so they had to set up their own a few years back.
Can they save €1000 in 1 hour? No, but they can in 96 minutes….
The cheapest I could find online was €391 for the year. During the process, we found a policy for €435. We used a €200,000 rebuild cost with €30,000 contents cover €2000 jewellery and €5000 special items cover.
Total Saving, €44.62
With all the concentration at the moment in the media on car insurance prices I expected there to be a huge variance. We don’t give advice in this area so I was intrigued to see what I would find. I was shocked at how little difference there was between companies. We only looked at insuring his car, he was the main driver, clean licence since 1995, no claims no points, driving a 2 litre 2010, BMW 3 series valued at €15,000.
The cheapest was €571 and it took a lot of searching to find it and the most expensive we came across was €859. Honestly though I couldn’t help but feel I was missing something on the cheaper quote.
Total saving, €288
We went looking for quotes to replace the policy on the mortgage. We tried our best not to use the expert knowledge we have in this area and it was very frustrating, going in blind our couple could save about €110 per year on a €200,000 term policy with 20 years to run (with a little bit of knowledge applied that could have been €600 but we will stick to the rules)
Total Savings, €110
Serious Illness Cover
Our couple had €100,000 serious illness cover with 15 years left on the policy. Again, it was difficult when you see what information is being provided to people who buy this online. You realise how much advice they are missing out on. But sticking with the exercise, they could save €575 per annum. With the most expensive plan being €2004 per year and the cheapest being €1429.
Total Savings, €575 year one.
As mentioned earlier potentially you could save €4485 in year one here but we are going to ignore it for this exercise as we can’t help but feel there is a huge difference between the two plans and we would never get through the research required in the time I allowed for this exercise.
Total saving, ignored.
As you would imagine this is where we could get the most savings. Our couple have a €200,000 mortgage on a variable rate (not a tracker). The most expensive rate on the market was 4.3% with the cheapest for their value of the their mortgage versus their property value was 3.1%. This would mean the repayments would go from €1243 per month to €1,119 per month. It is a major headache moving mortgage providers but as you can see it is worth it. There are costs involved but the bank offering the cheapest rate also offers a contribution to your legal and valuation costs.
Total savings, €1488 year one. (just under €30,000 in the 20 years!)
Let’s not get caught up here, rates are diabolical. The best rate we could get on demand was 0.6% with the lowest being 0.1%. On the €10,000 they have in savings that’s an extra €50 for the year.
But I can’t help but think with rates as they are should our couple be considering a well-constructed, well diversified portfolio in a long-term investment for part of their savings.
Better still should they be clearing the credit card or the personal loan they have on the car, again this is somewhere that a financial planner would help make the correct decisions.
Total Savings, €50 gross of tax!
Rates have really moved up in the last 12 months on credit cards, the most expensive we found was 22.9% with the cheapest being 18.25%.
If like our couple, you are waking up this morning wondering what to do with the credit card that you overloaded at Christmas then there is a really useful trick you can take advantage of.
The 18.25% rate we got comes with 6 months interest free on any balance you transfer. I would suggest this couple should transfer the €1500 they have on their credit card to the interest free option and try and clear it down over the next 6 months.
Don’t spend any money on the new card and cut up the old one.
If they carry the balance and pay interest only over the next 12 months they will still pay €206 less in interest by switching but potentially this could be a lot more.
Total savings in year 1, €206.
We did not have time to do a pension comparison online but from experience this isn’t something you should rush into. Get advice here. By way of example we had a client recently who was being charged 12% on every contribution they were making into their pension. This was on top of the ordinary ongoing charges. She never thought she could change her pension to a new provider and didn’t realise how easy it would be.
Total savings, ignored.
This was an eye-opening exercise to go through. It is far from straightforward finding savings. We purposefully put time constraints on it to try and see is it possible but also to be realistic about what people in general would be willing to do.
I found the Health Insurance Authority website hia.ie very useful but most useful of all was consumerhelp.ie which allows you compare mortgages, loans, credit cards and a whole lot more in a very simple format.
We managed to save our fictitious couple €2762 in 96 minutes. Yes, it will take time to implement the savings but some of the savings extend well beyond year one.
The exercise also reminded us of the value in independent advice. Of course, we would say that, but I learnt that there is serious value to be had by having a person to question rather than searching on a screen.