With gas and electricity prices continuing to climb skyward, is now the time to fix your energy tariff, or will you just end up paying over the odds? Here’s how to weigh up whether fixing makes financial sense.
The nations 'Big 6' energy companies are a never far from the headlines, and the latest hike in gas and electricity prices has seen the average UK household’s domestic energy bills soar even higher.
So as winter draws ever closer, should you move onto a fixed tariff now before the cold weather kicks in?
Here’s how to decide whether fixing is worth your while:
What is a fixed energy tariff?
Fixed gas and electricity tariffs set a 'price per unit' that applies for the duration of your contract irrespective of what happens to energy prices elsewhere.
You can usually arrange to pay a set amount for your energy each month by direct debit (you'll generally agree an amount with your supplier up front) which makes it easier to budget.
However, as your energy bills vary dependent on your usage it's really important that you regularly submit meter readings so that they're as accurate as possible.
If you've been using more energy than you've been paying for you may find yourself in debt to your supplier.
While if you've been paying for more energy than you've been using then your energy supplier will be holding onto your money unnecessarily.
Take a look at our article The Best Way to Keep Your Energy Bills Down for more information on fixed price tariffs.
Why fix?
The main benefit of fixing your energy tariff is that it will protect you from any price increases in the near future.
However, if you choose the right tariff you should also be able to reduce the amount you’re paying out for gas and electricity.
Price protection
The main benefit of opting for a fixed tariff is that you'll be protected against any price increases for the duration of your agreement.
You are essentially setting a price per unit for your energy until the end of your deal, so if the energy provider increases their standard tariff charges you won’t see your costs go up.
This is particularly useful if you can't afford to pay more for your energy than you do now as you'll have a guarantee that your energy bills won't go up - providing your usage stays roughly the same.
However, you are also likely to have to pay for this protection by starting out on a slightly higher rate than some of the ultra cheap variable tariffs energy suppliers offer online.
This means that if prices stay as they are, or fall during your fixed term deal you could potentially end up paying more than if you'd opted for a variable tariff elsewhere.
A fixed repayment
If you are struggling to stick to a budget each month or simply want greater control over your finances, knowing exactly how much you’ll be paying for your gas and electricity can certainly make life a little easier.
Opting for a fixed tariff, especially if you decide to pay using a direct debit where your repayments will be at a set level makes it easy to budget for the bill each month and means you won’t face high bills in the winter months.
But is fixing more expensive?
You may be able to find a tariff that offers cheaper flexible rates than those available from a fixed price deal.
However, as these rates are variable and can change at any time, if the energy supplier decides that it wants to up its prices then the amount you end up paying for your gas and electricity will also increase.
As a result, although variable tariff prices may initially seem cheaper, they could become significantly more costly should prices go up.
This uncertainty is what a fixed energy tariff will protect you against.
However, this reassurance is balanced by the risk that if you find a cheaper tariff or offer in say 3 or 6 months time you are unlikely to be able to switch without incurring a hefty exit fee.
Subsequently you need to be happy to stick with any fixed rate tariff for the duration of the term or any savings you might make could be swallowed up by exit fees.
The only general exception to this is should you move house, where the exit fee is often waivered by the provider.
What if prices fall?
If energy prices drop while you're tied into a fixed tariff you won't benefit from cheaper energy prices.
Customers on variable tariffs would see the amount they pay fall in line with price changes, but you would continue to pay the agreed fixed price for the duration of your tariff term.
Again, you could look at switching to a cheaper option, but you are likely to incur exit penalties that are likely to outweigh the amount you'd save by moving supplier. That said, it's always worth checking just in case breaking out of your fixed term energy deal would actually work out cheaper.
Discounted fixed tariffs
Most fixed rate deals will offer some sort of discount compared to the energy supplier’s standard energy tariff - particularly if you apply online.
As a result, if you are currently on you provider's standard gas or standard electricity tariff, you may find that switching to a fixed tariff will actually be cheaper from the outset.
Compare the unit costs for gas and electricity you are currently paying to those on the fixed tariff to check if a fixed rate deal would be cheaper.
What do you pay now?
If the finer points of your gas and electricity tariff are a mystery, you need to find out what energy tariff you’re currently on before you can establish whether moving to a fixed energy tariff will save you money.
You can do this by checking a recent bill or statement as your tariff should be clearly stated.
Take a look at our articles Who supplies your gas at home? and Who supplies electricity to your home? if you’re not sure which energy supplier you’re with as they explain how to find out.
Current energy rates
You should check your current price per kWhs for both your gas and/or electricity, so you can easily compare your current costs with fixed tariff deals. Again these should be clearly stated on a recent gas or electricity bill or statement, or would be available by contacting your current energy supplier.
Your provider will also have sent you an annual energy statement that will contain all the information you need about your current energy deal. Read our guide: Your Annual Energy Statement: The Key to Cheap Energy Bills to find out how to decode it and use the information it contains to your advantage when you switch.
Exit fees & tie-ins
Additionally, you need to check whether you are subject to any exit fees or charges should you wish to move tariff or provider.
Unless you have an existing fixed deal, it’s unlikely that you will be ‘locked in’ to your tariff in this way but it makes sense to know exactly how much moving might cost you before weighing up whether different energy tariffs could save you money.
Your energy provider will be able to tell you whether you'll incur any charges for switching, and when any fixed deal you're tied into will end. This information is also likely to be available on your energy supplier's website if you're signed up for an online account.
Is there a half-way option?
If you want to combine the benefit of protected energy rates with a flexible tariff that tracks prices downwards should they fall, you may want to consider a capped price energy tariff.
A capped price energy tariff is a half-way option between a fully fixed energy deal and a more flexible tariff.
Essentially the energy supplier agrees not to charge above a certain rate for the duration of your capped price agreement, but will also pass on any discounts should they drop their prices at any stage.
Although this may sound like a great option that gives you the best of both worlds, the starting price of capped energy tariffs are often more expensive than fully fixed deals, meaning you pay more for your energy from the outset.
For more information read our guide The Best Way to Keep Your Energy Bills Down.
What’s the cheapest option?
Ultimately, deciding whether or not to opt for a fixed energy deal will depend entirely on your individual circumstances, energy usage and your existing tariff.
If you value the security of knowing that your costs won’t increase over the next 12 or 24 months then moving to a fixed tariff could be a good choice.
However, if you don’t mind seeing your costs fluctuate and feel that wholesale energy prices are unlikely to change in the near future you may be able to find a cheaper flexible online deal.
For more help deciding which type of energy tariff best suits your needs try following our Action Plan: How to cut your utility bills.
