Last Updated on October 17, 2021 at 5:17 pm
Many products and services offer users a choice: pay monthly or once a year at a considerable discount. Does it always make sense to take the deduction? Typical examples are several SaaS (software as a service) products, website hosting etc. The yearly payment is often at a considerable discount. For example, the annual fee is the equivalent of only ten months fee (i.e. two months free). Products at such discounted rates are often bundled with other products. E.g. two months of free Netflix with a 4G subscription or broadband. Such a choice can be confusing, and it is often tempting to pay the annual fee and claim the discount. However, this can be problematic. We discuss how to choose in such cases.
Let us use an example. Website host Godaddy has a plan named “Deluxe Hosting”. The normal monthly fee is Rs. 599. If we pay for 12 months, there is a 30% discount, and the monthly fee is only Rs 419; Pay for 24-months (36% discount) or Rs. 379 a month; Pay for 36 months (50% discount) or Rs. 299 a month.
A new website owner can find the 50% discount quite tempting. After all (they would tell themselves) no one would host a business or blog site for only a month! Let us think long-term, pay for 36 months and take the 50% discount
This is precisely what the service provider wants us to do! Pay a lump sum instead of spread out payments. It is also tempting to argue this case using math by finding the effective IRR of the annual vs monthly payments. However, often, factors that cannot be quantified have a say in such matters. Read more: The trouble with rent vs buy calculations
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
When we look at the features offered by a website host or SaaS provider, it is hard for a newbie to understand and appreciate the characteristics of each plan, especially the limitations. Many cloud-based software providers offer a trial period of about 1-2 weeks.
Even if we spend all our time evaluating the software during the trial period (highly unlikely), we may not explore all its features. Often we understand limitations only after the subscription has started. Sometimes the plan could even be unsuitable for our actual need. Buying a long-term plan can be a trap, especially if they do not refund unused subscription time on cancelling.
When freefincal first moved out from WordPress to independent hosting, it was on a shared Hostgator plan (3Y) it was then upgraded to a 3Y cloud hosting (still shared). The service was always the same. Personnel often gave robotic answers without understanding context and at times blocked the site without warning when it uses too many resources (CPUs or RAM). We then have to move out midway of the 3Y subscription.
Freefincal is currently hosted at A2hosting VPS with monthly subscriptions. This makes relocations easier. The service here is significantly better, and they take a moment to understand the support question! In spite of that, having made several wrong “discounted annual payment” decisions in the past, this author believes there is always a feature/limitation that we did not know about and prefers monthly payments. Severing a monthly contract is so much easier.
If after, using the services and features for an extended amount of time, we are satisfied, a monthly vs annual renewal discussion makes better sense.
Even then, as long as there is a monthly income source and the subscription fee is manageably lower, it still makes intuitive sense to pay monthly instead of handing out a lump sum for the same service! This kind of SIP is better than a lump sum payment!
Do you such experiences? Please share them below.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)