Understanding Fixed and Variable Tariffs
There are some significant differences between fixed and variable tariffs that could mean you’re paying much more for your gas and electricity. We’ve created this guide to help you understand the differences and identify which is the right tariff for you.
What Is A Fixed Rate Energy Tariff?
If you have a fixed energy tariff, the price of each kWh of gas and electricity will remain the same.
Many confuse this with paying the same amount of money to your energy supplier every month. However, the price you pay per month depends on your overall energy usage. Fixed-rate energy tariffs are great for avoiding price increases when wholesale energy prices fluctuate. There are some drawbacks which will be highlighted further down.
Benefits Of Fixed Energy Tariffs
- Accurate billing: You’ll be able to more accurately predict how much your energy bill will be each month due to the fixed price-per-unit of energy, and can budget accordingly. Just be cautious of how much energy you use. Many business energy customers choose a fixed rate tariff for predictable cash flow.
- Protection from wholesale price increases: Fixing your energy means that the price you pay per kWh of energy used will not increase when the wholesale energy market does.
Disadvantages Of Fixed Energy Tariffs
- What if wholesale energy prices decrease?: Fixing your energy tariff means you could end up paying more if wholesale energy prices go down.
- Exit fees: You’re agreeing (usually one to two years), so you may end up needing to pay an early exit fee if you would like to switch energy suppliers before the contract has finished.
What Is A Variable Tariff?
A variable tariff (or standard variable tariff) means that the price you pay for each kWh of gas and electricity can go up or down at any time. A good indicator of price change is wholesale energy prices - however, energy suppliers can change prices whenever they like for any reason.
Customers do have protection through Ofgem’s energy price cap - so energy suppliers do have limitations on how much they can charge you for energy.
If a customer does not specify what tariff they’d like to be put on, or if their tariff comes to an end, they will automatically be put on a default variable tariff, which is why it’s important to remain vigilant regarding your energy tariff. If you allow yourself to roll onto a variable tariff, you could end up paying a lot more than you should be paying.
Benefits Of A Variable Energy Tariff
- Take advantage of price cap falls: If the price cap falls, customers on variable tariffs could end up saving money, as their price-per-unit of energy will end up falling.
- No exit fees: Standard variable energy tariffs don’t often come with exit fees, allowing you to switch deals freely if you find a cheaper one that’ll help save you money.
Alternatively, if the price cap rises, you could end up paying more per kWh of energy, which means you could see an increase in your energy bills if you’re not careful.
Disadvantages Of A Variable Energy Tariff
- Price increases - over time, prices usually increase. In line with wholesale energy prices, your bills will also increase.
- Budgeting - it is much more difficult to budget your energy spending every month as prices can change at any point.
Choosing A Fixed Or Variable Tariff
This largely depends on current market conditions.
We’re currently going through an energy crisis and in some cases, it is unwise to jump on a fixed deal. However, there are certain circumstances where a fixed-rate energy deal is a good idea.
In normal market conditions, it is a great idea to fix your energy deal. You can get a fixed rate tariff for 12, 24 or even 36 months. Wholesale energy price rises will not affect you, and you won’t need to concern yourself with any price cap news.
If you enjoy flexibility, and the freedom to move from tariff to tariff when it suits you best to look for the best deals that’ll save you money, then a variable tariff is probably your best bet.
However, if you opt for the fixed price tariff, bear in mind that when it comes to an end, you’ll automatically be put on your supplier’s default variable tariff. So be aware when your fixed contract ends so you can switch to another tariff.
Where Can I Find The Best Energy Tariffs?
Finding the best energy deals on the market doesn’t have to be time-consuming. We’re here to do all the hard yards for you.
Enter your postcode when you visit our website, enter a few of your details (with a utility on hand if possible) and away you go. We’ll compare all the hottest deals in the energy market right now for you, and if you find a tariff that’ll save you money, we’ll handle the switch for you.
You’ll be able to set your preference to search for either a variable or fixed tariff. Feel free to search for both so you can get a feeling of how much money you could save with either