How to save $1,186 on an iPhone 6 contract
If you're planning to buy a new iPhone 6 when it comes out this Friday, you'd be wise to take a close look at your calling plan. Picking the right carrier and payment option can save you hundreds of dollars a year, according to an analysis of plan options for the four biggest carriers, AT&T ( T), T-Mobile (TMUS), Sprint and Verizon (VZ).
WalletHub analyzed the two-year cost of buying and operating an iPhone 6, with 16 GB of storage capacity, on each of the four major carriers' plans. In all, the site made 12 comparisons among the four carriers: the cost when buying the phone outright; buying it with an installment plan; and buying it at a discount with a two-year service agreement.
To make apples-to-apples comparisons, WalletHub assumed that each plan would provide at least 2 gigabytes of data and unlimited phone calls and texting. However, it did not account for the cost of options, such as phone-tracking services, which vary from carrier to carrier. (It also "discounted" the cost of future payments to adjust for the affect of inflation and opportunity costs, which are higher when paying large amounts up-front.)
The price for phone plus two years of calling ranged from a high of $2,276 to a low of $1,640 -- a near 40% difference of $636. However, if consumers have a phone to trade in and an old contract that needs breaking, the difference between the highest-cost and lowest-cost option is a whopping $1,186.
For someone who had no contract or iPhone to trade in, the cheapest option would Verizon's two-year contract. With it, the consumer would need to pay $199.99 to get the phone, but would pay just $60 a month after that. Total cost over two years: $1,640.
However, WalletHub says because most of the expense is from the monthly fees that are paid over time, the "present-value" of this contract is even lower -- $1,568. (This analysis discounts future payments at a 5% annual rate to account for the time value of money.)
However, if you're under contract with another carrier, the cheapest option may be the runner-up: T-Mobile.
The plucky No. 4 in the cell-phone wars has gotten aggressive about buying out other carriers' customers. It says it will pay up to $650 to someone trading in a phone and switching carriers. For anyone willing and able to take T-Mobile up on the full value of that offer, the net cost of this deal would amount to just $1,090. That's the $1,740 cost of the phone and service for two years, minus $650.
And it's $1,186 cheaper than the total outlay for the highest-cost plan that meets these same criteria.
It's worth mentioning that T-Mobile doesn't offer contracts. It has just two options: Buy the phone with a one-time charge of $649.99, plus a $10 connection fee, and pay just $45 a month for your calling plan. Or buy the phone through installment payments that bring up the monthly net to $82.40, paying just the $10 connection fee up-front. Either way, consumers pay a total of $1,740 if they have no phone to trade in or contract to break.
The worst deal by far is Sprint's two-year contract, which will cost consumers $2,276 in total. With this option, consumers would pay $236 up-front and $85 a month for service.
The far better deal for those who want Sprint service would be to opt for the company's installment plan or pay for the phone up-front. Either option has a net cost of $1,886, $390 less than the two-year agreement. However, WalletHub argues that, because of the time value of money, Sprint's installment deal has a lower adjusted net cost of $1,793.
AT&T's two-year agreement is only a slightly better deal than Sprint's, with a total cost of $2,160 -- $240 up-front and $80 a month in fees. However, AT&T charges the most, $2,210, for those who want to buy the phone through installments or pay for it up-front.
It's worth mentioning that virtually all carriers are offering money for old iPhone trade-ins, anywhere from $200 to $350, depending on the model. So, if you're willing to part with your old iPhone, make sure you ask about the trade-in plan and account for it when comparing the total cost of your new iPhone deal.
And don't forget to make sure you wipe any private data off your phone before you sell it.
