I recently replaced my two-and-a-half year old iPhone with a new iPhone. This reminded me that it’s typically not a good value to hold onto your iPhone for many years. Here are two reasons for this belief:

The first reason is that if you keep your iPhone beyond the two year contract, you’re giving your cell phone provider more profit. Most people buy subsidized iPhones. This means that they pay between zero and $400. The iPhone’s actual cost is more than this. However, the cell phone service provider, such as AT&T or Verizon, covers the price difference. This is why they typically require a two-year contract. Each month, part of your bill reimburses the cell phone company for their subsidy. After your two-year contract has expired, your monthly bill doesn’t go down. Instead, the cell phone company simply makes more profit on your bill since they’ve been reimbursed in full for the subsidy they provided. Instead of giving this money to them as profit, it seems to make more sense to have them subsidize the price of a new iPhone.

Alternatively, you could buy a non-subsidized iPhone. Then you won’t be tied to a contract at all. T-Mobile has offered non-subsidized iPhones since the start of 2103. AT&T indicates that they will stop offering subsidized phones, at some point, as well.

Secondly, in the competitive cell phone market, prices can drop. I was pleasantly surprised to learn that my monthly cell phone bill would drop from $95 to $50! With this monthly savings of $45, I’ll recuperate the cost of the subsidized iPhone, which was $200, plus the $36 upgrade fee in 6 months. My monthly bill dropped since AT&T has dramatically reduced the cost of phone calls and texting. I had been paying $5 per month for 200 texts and $60 per month for 950 minutes of phone calls. AT&T was now offering unlimited calls and unlimited texting for $20 per month.

I realize you might be reluctant to replace your iPhone so frequently because you don’t want your old iPhone to end up in the landfill. You can extend the life of your old phone by giving it to a friend, selling it online or donating it to a charity.