The Lowdown on Subscriptions, Payment Plans, and Free Trials
Understanding recurring payments and tips to manage your subscriptions and avoid surprise increases
These days, we’re living in a “subscription economy.” Recurring payments make up more of the modern personal budget than they did a decade ago, and it’s no wonder. They’re the easiest way to get regular access to the services you need and the products you love: streaming services, subscription boxes, meal deliveries, refill plans, premium apps and more. They help prevent lapses in service and can free up time spent tracking various payments so you can spend more time doing what you love.
But convenience can sometimes come with a catch. You might lose interest in a service, or forget you’ve signed up altogether once a free trial expires. You might even be among the 84% of people who underestimate how much they’re paying a year for subscriptions.
Any time you’re signing a contract or giving out your bank account or credit card information, it’s up to you to know what you’re signing up for, your cancellation rights and why rates may change. Here’s a quick overview of the most common types of subscriptions and payment plans so you know how they work and what to expect—and some helpful tips to help you stay on top of your money and recurring payments.
A Look at Pricing Models & How They Work
Usage-based plans are how most companies bill for regular services depending on how much you use, like data plans, internet services, cloud storage, or home utility providers. It’s a win-win: You get reliable service and the transparency of paying only for what you need, and companies get regular customers.
Why do payments increase? Rates may fluctuate based on how much of the service you use, like a cell data overage, or running your AC more in the summer. Others may increase year-over-year to cover increased operating costs. There’s no guarantee you’ll always pay the same rate when your contract gets renewed, but some companies do offer “grandfathering” to long-time customers, which means they’ll pay the low rate as they did at sign up.
Tips: Capital One proactively lets you know when a recurring payment goes up in price. This can help you avoid surprises or spot potential billing errors, and stay on top of how you’re using a service so you’re not charged overages. Other services like Trim can review all of your regular payments and help you negotiate lower rates with providers.
Subscriptions are all about convenience and getting the best value, whether it’s a streaming service, regular deliveries, shipping discounts, or an auto-renewed membership. Regular, flat payments are calculated based on the length of the contract, with longer terms typically offering the best value.
So, why do subscription plans increase? Most companies are very transparent about why they’re adjusting rates—whether it’s to ensure they can still provide the same quality as they grow. Take a streaming service, for example. To sustain the same fast, high-quality video to a larger audience, they’ll need to up their bandwidth, invest in better network capabilities and create more content to meet growing demands. Higher rates help them sustain customer satisfaction as they scale.
Tip: Increases in subscription rates are not uncommon, and typically won’t happen unannounced or without your consent. Keep an eye out for renewal notices, or communications about price increases. It’s helpful to audit the plans you’ve signed up for so you can regularly reevaluate a subscription’s value, or shop around for other options.
“Freemium” & Tiered Plans
Tiered plans are all about giving you the flexibility to customize what you need from a service—whether it’s a meal kit delivery service that allows you to choose portion sizes, or a music streaming service that lets you play free music, but with breaks for advertisements. Many companies offer pricing structures with more value at higher rates, like basic, plus, and premium plan structures. Freemium plans let users start for free, but pay for additional features a la carte, while per-user plans go up in price the more individuals you sign up.
Let’s say you are using accounting software at home. You likely won’t need all the bells and whistles that a large corporation would, so the free option offers a low barrier of entry. Companies bank on you wanting those extras over time—or wanting to remove those pesky ads from free apps and services.
“Once the value of the service has been proved, prices can go up or more expensive tiers can be added. All the while, the companies gather data about how we use their services in order to create irresistible upsells.” - Joanna Stern, WSJ.com
Tips: Create a document that lists all of the plans you’re on so you can reevaluate every few months. When a family member leaves the nest or your needs change, you might find you can downsize from that higher-tier plan.
Free Trials & Promotional Periods
Are free trials really free? Typically, free trials come with nominal fees, or they bet on you loving a product or service so much you sign up when the trial expires. But, they’re not always so cut and dry. Promotional periods and introductory packages typically come with some strings attached, so it’s important to know what you’re signing up for and how easy it is to cancel.
The Federal Trade Commission warns consumers to watch out for misleading tactics that might lock customers into paid plans once the free period or discounted promo period expires. These can include pre-checked boxes you might miss or strict conditions that make it difficult to cancel once you’ve signed up. A free trial can turn into a costly monthly payment if you don’t read the terms or lose track of time.
Tips: Set up calendar alerts to remind you when a free trial is ending so you can take action in time. Or, rely on technology like Capital One’s Recurring Payment Increase alert, which stays on top of your money by letting you know when a free trial or promo period is about to expire.
Helpful Tips to Manage Recurring Charges & Subscriptions
Set-it-and-forget-it payment plans are easy, convenient, and in most cases, more affordable ways to pay. But staying on top of all of those recurring charges doesn’t have to be a big hassle. Capital One takes the hassle out of surprise charges or rate increases by proactively keeping an eye on your money—and letting you know when something changes.
Here are a few other tips to help you manage subscriptions and ensure you’re not caught off guard by sudden changes or increases.
- Review Terms & Conditions before you sign up for any service online
- Research free trials offers for hidden fees and cancellation policies
- Set calendar alerts for free trial expirations
- Sign up for an app or service that audits your subscriptions and tally up totals, so you know what you’re paying and where
- Try out a service that helps cancel or unsubscribe from services for you
- Set up app or data usage limits to make sure you’re not going over
- Check your debit and credit card statements for changes to regular charges
- Consolidate to family plans for certain services