Thrifty Living: Call in the savings with a web phone

The home phone market is incredibly competitive these days. Once you've paid the £10 or £11 a month for your line rental, local and national calls are often free in the evenings and at weekends. However, if you make lots of calls to UK mobiles or overseas numbers – or if you've got a need for a second line in your home – the bills can start to add up.

The good news is that by using your computer to make these calls, you can cut your bills even further. If you're paying anything more than £20 a month for your phone bill, then signing up to a so-called VoIP (voice over internet protocol) service – such as Skype, Vonage or VoipCheap – could save you hundreds of pounds a year.

Getting started

There are two main types of VoIP services – computer-to-computer, and computer-to-landline/mobile. Computer-to-computer calls are almost always free – just download the software from sites such as skype.co.uk or google.com/talk to get started. After that, make sure whoever you want to call has downloaded the same software, and off you go. Some VoIP services – including Skype and Yahoo Messenger – also allow you to use a webcam while you talk.

If you want to use your computer to call people on a landline or mobile, then the chances are you'll have to pay. However, charges for VoIP calls are generally cheaper than regular packages, and are particularly competitive if you regularly make overseas calls or need a second telephone line.

VoipCheap.co.uk has one of the cheapest deals on the market, offering free computer-to-landline calls to more than 25 countries, including the UK. Calls to other destinations cost between 1p and 60p a minute – and there are no monthly fees to pay.

Alternatively, Skype and Vonage offer monthly packages, which allow you to make unlimited calls to certain destinations. Vonage, for example, charges £6.99 a month for a US calling package, which allows you to make unlimited calls to US or Canadian landlines or mobiles – as well as unlimited calls to UK landlines. There are more expensive packages available if you need access to more countries.

Skype has a slightly different way of doing things. For just £2.24 a month, you can make unlimited calls to one European country of your choice, or for £7.99, you can make unlimited calls to 35 countries across the globe.

If you use VoIP services regularly, it is possible to connect a regular phone handset directly to your VoIP service. Vonage provides the converter free of charge while, with others, you will need to buy the adapter yourself.

The catch

One of the main drawbacks with VoIP is that you require a broadband connection to use it, which means you'll almost certainly need a landline. Many providers already charge very little for both domestic and international calls once you've paid your line rental, meaning VoIP will likely only save you a meaningful amount of money if you make a lot of overseas calls, or if you need a second line.

Virgin Media is one provider that allows you to get broadband without also signing up to its home phone line – although you need to be in a cable area. Furthermore, Virgin's prices don't start to look competitive until you take up two or three of its services (i.e. home phone and cable TV as well).

Sites like broadbandchoices.co.uk and uswitch.co.uk can help you search for the best broadband packages. Alternatively, simplifydigital.co.uk combines digital TV, broadband and home phone.

Another potential downside to VoIP is that call quality tends to be worse than a regular landline, although it varies among providers. However, in recent tests by the consumer group Which?, Demon, Gradwell and Sipgate were found to be best for quality, while Tesco and Barablu were the worst.