Consumers miss out by not comparing offers from bank
Most consumers miss out on better deals by not shopping around when buying financial products, according to a new study by the ESRI’s Behavioural Research Unit (BRU). When applying for bank accounts, credit cards, loans or mortgages, people rely on personal recommendations or a bank they use already, despite better value products usually being available elsewhere.
The research, commissioned by the Department of Finance, surveyed a national sample of almost 3,000 consumers, providing a detailed account of consumer behaviour in retail financial services. When choosing their bank account, 73% of consumers did not shop around. The figure was 68% for loans and 74% for credit cards.
Even when getting a mortgage, 46% did not compare offers, despite differences in interest payments that can add up to tens of thousands of Euros.
Once consumers have these financial products, the majority do not consider switching to better value ones. Switching rates across the four products ranged from 6-17% over five years. Most people are aware that switching is an option but cite difficulty comparing offers, costs, time, uncertainty about the process and worries about making a mistake.
Shopping around appears to be a habit. The same consumers who compare offers when initially purchasing financial products are also more likely to switch in future. The main motive is simply to save money, rather than to get new features or better service.
“Consumers could make substantial gains by choosing better value financial products, but many feel unable to do so,” said Professor Pete Lunn, Head of the BRU. “In the next stage of this research programme, we are using the study findings to design digital tools to help people to understand the market better and to feel confident enough to shop around for better deals.”
Minister for Finance, Michael McGrath TD noted: “The findings of this report are clear, consumers can making considerable savings by actively comparing a range of commonly used financial products. Given recent interest rate increases, mortgage holders in particular have a strong incentive to look at potentially better value options and I hope the findings will encourage many to do so. The report gives a very useful insight into the reasons why some people stick with existing financial product providers despite the potential savings which switching offers. Financial institutions have a duty to make costs and features of their products clear and accessible. As Minister for Finance I will be giving my full support to measures that can be undertaken to make the switching process as attractive and seamless for consumers as possible.”