This article is adapted from this month's issue of Stuff magazine, which is packed with money-saving tech tips. Head here to try 3 issues for just £1.
If you thought the 'free' iPhone 6s you got with that 2-year contract was a pretty good deal, think again. We compared two-year contracts from all four major networks and found that it's at least £320 cheaper to walk into Harrods, the Knightsbridge department store better known for selling lion cubs and diamond-encrusted golf clubs, and buy the same phone in cash.
The same is true for Android phones, too: a two-year contract on a Samsung Galaxy S6 Edge from any of the big networks is much more expensive than buying the phone over the counter at Harrods, which also sells caviar at £325 a mouthful and once sold a bathtub for over half a million pounds.
DO THE MATHs
We've based our calculations on five typical deals on the latest iPhone (not flash sales, which are cheaper but run for limited times). Harrods, like any other Apple retailer, sells the 16GB iPhone 6s at its RRP of £539. Remember, this is the shop that will also sell you a candle, a candle, for crying out loud, for five hundred quid.
Anyway, to the maths. Up front the networks all look pretty affordable, with a small payment 'for the phone' and about £45 a month to pay thereafter. This makes it seem that the phone is cheap and the data is pricey.
But with companies like The People's Operator and Carphone Warehouse's iD network offering SIM-only deals for under £10 per month, data just isn't that costly. To buy the phone outright and use the same amount of data (2GB/month) on iD costs £755, while the two-year plans cost up to £1180 by the time they're paid off.
A contract is a loan
The cost of the two-year-deal is high because it's essentially a hire purchase agreement; the network is lending you the money to buy the phone from its own shop. And in many cases, the interest on this loan is higher than almost any other financial agreement.
To see how much that interest costs, imagine you bought the phone on a credit card that offers 0% interest for 24 months, and paid it off over two years. It would cost you just under £23/month for the phone, plus £10 for the SIM-only contract. At £33/month, this means the network is charging you up to £13 in interest per month, at rates topping 40% APR.
It's important to note that the networks do offer extra benefits: free calls abroad, higher speeds, member privileges like cinema seats and early access to gig tickets. If you're paying top whack for a contract, make sure you use those extras.
Of course, the alternative is to not spend that money. In this month's issue of Stuff we've got a five-star phone for £115 and pixel-packed 4K TVs at under £500. And that's not all:
- the best cheap phones, TVs, headphones, laptops and more.
- 'price hacks' that'll save you a ton on the high street
- gadgets that'll actually save you money
Pick it up for just £1, and let the bargain-hunting begin!