The wrong mobile phone deal can needlessly cost you hundreds of pounds a year. With the market changing daily - and leaving many tariffs overpriced - here is Times Money's guide to getting best value.

Prepay

These deals, which allow you to make calls provided that you have sufficient credit, offer the best value if you are not a frequent user. James Parker, of Moneysupermarket.com, the comparison website, says: “They are good for people who want to make the odd call without being tied to a 12-month contract or the risk of nasty bills.

“The downside is that topping up can be a nuisance. With a contract, you know that your phone will always work.”

Note, however, that all mobile handsets will make emergency calls (to 999), regardless of credit.

Mr Parker adds that tariffs are “much of a muchness” across different networks. But because calls within networks (from one Orange phone to another, for instance) are much cheaper than those between networks, you are likely to obtain the best deal by choosing a provider that friends have already joined.

A second factor will be your choice of handset. While mobiles on monthly contract are “free” or heavily subsidised, you will pay close to the recommended retail price on prepay phones. The consumer group Which? says that best-buy phones include the Sony Ericsson W890i Walkman (£230) and Nokia 5310 XpressMusic (£80), both of which feature built-in MP3 players.

A no-frills option, such as the Nokia 1208, costs £14.97 in the Tesco Mobile sale. At the other end of the scale, the 16Gb Apple iPhone 3G costs £391.45 with O2, but is free on the provider's £75-a-month contract.

It is worth remembering that research from Moneysupermarket.com indicates that the average prepay user spends about £17 a month on credit. Mr Parker says: “If you are paying that, you would probably be better off on a contract. Good deals are available from £9 a month.”

Contracts

The monthly cost of a contract ranges from £9 to £75-plus. This will include a set number of free minutes of call time and text messages, above which they are billed at a set tariff. Handsets are free or subsidised, but you must sign up for a fixed period of at least a year, and often 18 months. Once you have subscribed, you are stuck with the deal until the contract term has expired (unless you pay the balance to leave), so it is important to make the best-value choice.

Tools at websites such as uSwitch.com and Moneysupermarket.com can help shoppers to compare deals. You enter the number of calls and minutes you want each month and then view the options. If you are new to mobile phones, the data you enter will be a rough estimate, but if you already have a phone, your provider's customer services department can tell you your average usage.

Mr Parker says that good deals include 3's £9-a-month contract for 18 months, the cheapest on the market. This comes with a Sony Ericsson K660i handset and includes 100 minutes or texts per month (or a mixture of the two), plus 300 minutes of calls to other phones on the 3 network.

For more frequent users, the 18-month Dolphin 35 tariff from Orange offers 600 minutes and unlimited text messages for £24.46 a month when purchased online.

But beware of false economy. Ceri Stanaway, of Which?, says: “Unless you are a light user, do not go for the cheapest tariff automatically - the cost of calls over and above your contracted minutes soon adds up.”

Sim-only tariffs

These contracts do not include a new handset. Instead, you receive a Sim card that you can use with a phone that you already own (from a previous contract or prepay deal). You receive more minutes and texts for your money and could save as much as 50 per cent.

Haggle

The mobile market is more flexible than you may think. Mr Parker says that customers coming to the end of a contract should haggle with their existing provider before switching. “These companies want your business,” he explains. “If you threaten to leave when your contract expires, all providers will offer incentives to stay. These could be more free minutes or texts, or a better handset.

“Do some research and ask the company to beat better deals elsewhere. And make sure that any perks are things that you would use - texts rather than video messaging, say.”

If you are unhappy with a contract, you are stuck with it unless the provider does not fulfil its obligations. Nevertheless, check bills regularly and contact the company if you are using all - or very little - of your allowance because it may agree to a more suitable deal.

Don't be dazzled

It is easy to be seduced by top-of-the-range handsets, such as the iPhone, which may be available only at a hefty price or on expensive contracts. Mr Parker says: “Many people buy them for special features, such as web-browsing, which they play with for only a couple of weeks.”

Likewise, some retailers, including Carphone Warehouse, include goodies such as the PlayStation 3 console with certain contracts. But you could pay over the odds for the “freebie” if the deal does not match your usage.

Shop around

Ceri Stanaway, of Which?, says that it is important to check prices with third-party retailers, such as Phones4U and Tesco, as you may secure a better deal.

Chase refunds when you switch

Mobile phone users terminating their contracts should check their final balances carefully because some phone providers will not make an automatic refund if the account is in credit.

Which?, the consumer group, gave the warning as Ofcom, the telecommunications regulator, continues to investigate the issue after customers complained about chasing mobile phone companies for their refunds.

Customers who pay by direct debit can sometimes be in credit with their providers, even after payment of a final bill. Some companies, such as Orange, send customers a cheque automatically. T-Mobile refunds the balance automaticaly if it is more than £20, but if it less than this amount, customers must call a number to request the money. Vodafone customers must also call to request a refund.

Consumers who complained to Ofcom said that providers were relying on customers forgetting to claim the refund or simply not bothering because the amounts were small.

A spokeswoman for Ofcom says: “We have gathered evidence from the industry and found a mixed picture in this area. Many companies already refund customers automatically and others are in the process of upgrading to this practice. We are working with the industry to improve best practice across the board.”

Lauren Thompson

Case study

Richard Lerman, above, had been with Orange for ten years when his latest 18-month contract expired.

The 45-year-old, a sales manager specialising in TV and film merchandise, was tempted to switch from his £35-a-month contract to a new deal with O2 but managed to negotiate a better tariff.

“I know that you have to take the initiative,” he says, “so I called Orange before my contract expired and said that I wanted to leave. I was passed on to its retention team and got a great deal by haggling.”

He asked Orange to match or beat the rival tariff. “It took a bit of pushing,” he says, “but in the end it gave me unlimited free calls to landlines, an extra 200 minutes of other calls per month and an extra ‘magic number' to which I can make unlimited free calls. I am now getting Orange's £45 a month deal for £35.”

Mr Lerman, of North London, urges readers to push for similar perks when they approach the end of a contract: “Orange seemed very stubborn at first, but once I got on to the retention team, it became clear that it was willing to be flexible.”