Is paying by direct debit a rip-off?
But such arrangements allow companies to take money from your account every month, even if they're not owed the cash based on estimates. Who benefits from this arrangement, then, really?
It certainly benefits the utility companies. Who wouldn't like the idea of several tonnes of money reliably dropping into their account every month without fail? If this is cash utility companies actually aren't owed they can still profitably invest it without your consent - until you claim it back, without a cent of interest.
£1.7bn better off
Which? surveyed the arrangement a few years ago: electricity customers using direct debit were in credit by £74 at any one time while gas customers, Which? found, were typically ahead by more than £80. Multiply those cash numbers by around 20 million UK households and you have a massive amount of interest-free cash being lent to the utility operators by their customers.
Apply these sums to a market where many customers are loath to change suppliers or shop around for a better deal because of the complexity around switching. No wonder the share prices of utility companies have been increasing of late. The Mail reckons utility companies are now hanging onto £1.7bn of consumer cash which they're not entitled to.
Interest-free loansYes, direct debts can reduce the hassle and worry out of monthly bill-paying. They're especially good for those on tight budgets, wanting to spread their payments. But clearly the arrangement is somewhat one-sided. You're even penalised by not paying by direct debt.
Some companies, like BT, will charge you extra for paying by cheque. It's called a 'process payment' charge and it costs more than £22 a year.
"BT has for many years maintained a price differential between those who pay by direct debit and those who do not," BT told AOL Money. "We believe it is fair and reasonable for there to be a price differential between customers paying by direct debit and those who don't. BT maintains a differential because it costs more to process non-direct debit payments."
Auto-refund?Still, if you'd rather not continue giving the shareholders of private companies interest-free loans, then think about calling in your reading regularly instead of paying an estimated figure by direct debit. But remember to check with your energy companies - there may be a discount to pay by direct debit so explore all your options.