Your need-to-know guide to the benefits of fixed rate energy tariffs
Your need-to-know guide to the benefits of fixed rate energy tariffsFixed Rate Energy Tariffs
When you’re looking for a new contract for your gas supply or electricity supply, you’ll notice a vast amount of deals are available. With hundreds of energy companies offering a wide variety of tariffs and contract types, it can be challenging to get your head around what’s on offer and which deals will give you the best value for money.
Like many UK households, you’ll likely discover cheaper gas and electric tariffs that could reduce your gas and electricity bills, and during your search, you’ll come across both fixed-rate tariffs and standard variable tariffs. Whilst they seem similar, these offer very different rates for consumers.
What is a fixed-rate tariff?
The wholesale price of gas and electricity goes up and down, just like many other commodities. However, the energy market can be particularly volatile, with the value of gas and electricity potentially rising and dropping wildly and unexpectedly for customers.
Fixed-rate energy tariffs were created to protect customers from taking the financial weight of the energy market’s unpredictable changes. As fixed tariffs include a specific rate per kWh of energy, the price a customer pays for each unit of energy remains constant throughout their contract. This ensures customers are treated fairly and know exactly how much they will be paying per unit of gas or electricity, despite the instability of the energy market.
In contrast, a standard variable tariff does not have a set price per unit of energy, meaning the amount a customer could pay for gas and electricity can vary from month to month, and households risk experiencing huge prices hikes.
Flexible or standard variable tariff: customer and supplier do not have an agreed price that the customer will pay for energy, and there is no fixed duration or contract.
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How fixed-rate contracts work
Gas and electricity contracts usually last between one and four years. During this time, a customer on a fixed-rate tariff will pay a fixed price per unit of energy used.
This does not mean that the final amount on a monthly bill will be fixed, but that the cost of energy does not change. The more units of energy a household uses, the more they will be charged on their next energy bill.
Your bills won’t be affected by the market price of gas or electricity, but only by how much energy you choose to use from month to month.
Typically offering a cheaper alternative to standard variable tariffs, if you choose a fixed-price energy tariff, you will be tied in for the duration set out in your contract. You’ll benefit from cost savings at face value and protected from price rises, but you need to see your contract through to the end date or you’ll be charged an exit fee.
The advantages of fixed-rate energy tariffs
- Fixed-rate energy deals can save you hundreds of pounds each year.
- The rates you pay for energy will be protected and won’t increase in line with market fluctuations.
- Managing household budgets is simpler and easier when you pay a fixed price per unit of energy.
- There’s a wide selection of fixed-price tariffs, which are offered by most energy suppliers.
The disadvantages of fixed-rate energy tariffs
- Sometimes starting rates are more expensive than variable tariffs.
- Exit fees will be charged if you leave your contract early.
- You won’t benefit if there is a decrease in the wholesale cost of electricity or gas.
- After your contract ends, you may be switched on to an expensive default tariff if you don’t compare and switch to a deal offering better value for money.
What to do when your fixed rate deal expires
If you secure a fixed-rate tariff with your energy supplier, it comes with a contract, and that contract comes with an end date.
After your deal has run its course, you can shop around for something new. You won’t be charged for switching tariff and you can move on to any deal you prefer, with any energy company you choose.
As you’ll only be paying the fixed price agreed in your contract until its end date, it’s important to start looking for cheaper energy deals again once that end date is approaching. Otherwise, your current supplier may move you to a pricey default tariff. In contrast to the fixed price, your default tariff will probably be on a standard variable plan so your bills could rise.
Although you’ll usually be charged an exit fee if you leave your contract early, there’s a 49 day period towards the end of your contract when you can switch away from a fixed-rate tariff freely and without being charged.
To find a new deal, use our energy comparison tool. By shopping around, you can be sure that you are accessing the cheapest deals. When you find the right choice for you, confirm you’d like to switch, input a few details for your new electricity or gas supplier and the transfer will be handled for you.
How to know if a fixed-rate deal is right for you
Most people will benefit from fixed rates. If you are able to anticipate the cost of your energy bills, it makes budgeting more straightforward and achievable.
Furthermore, you have more control if you wish to reduce your energy bills. Simply lessening your energy usage will lower your bills. In contrast, you have less control on standard variable or default tariffs, where you could use minimal energy but still have an expensive bill if there is unfortunate timing with the energy market.
What’s more, if you use a lot of energy on months where your cost per kWh of energy is high, your bills could rise far higher than what is normally affordable for you.
However, that’s not to say that default or variable energy deals are not appropriate for anyone. These are contract-free deals that will be particularly suitable for households that require flexibility. For example, if you are soon to be moving house or have personal reasons for avoiding a longer-term contract.
What’s more, if you are on a fixed-rate contract but find that your energy firm is not providing a good enough service, you may feel stuck if you are tied into your contract, or face paying an exit fee if you leave early.
Some customers will also want to benefit from the periods when energy is cheaper or may be less concerned about possible price increases if the market is looking stable. In this case, a standard variable tariff may be more attractive.
It’s a good idea to compare all options to see what feels like the most sensible option for you. You can use our comparison software to browse a variety of tariffs, including gas only, electricity only, dual fuel deals or green energy deals.
What happens to fixed-rate deals if you move house
Many suppliers will also give you the chance to end your contract without paying an exit fee when you move. There’s no clear answer, as the specifics will depend on how your energy provider works.
If you choose to discontinue your fixed-rate deal in your new home, make sure you prioritise finding new gas and electricity tariffs. Otherwise, you’ll be automatically placed on an expensive deemed contract. Make sure you take meter readings at your old and new properties and inform your suppliers of these, too.
How long you can fix energy costs for
Your energy supplier will notify you when your deal is coming to a close and this notice period will start about 49 days before your contract is up. You won’t be charged an exit fee if you switch after this point, so it’s a great time to start comparing cheaper energy deals.
Find a better fixed-rate energy deal using UtilitySavingExpert.com’s free comparison technology. When you confirm you’d like to switch, the whole process will be handled on your behalf and the switch will be made within 21 days, which includes an initial two-week cooling-off period when you are free to change your mind. You won’t experience any gas or electricity shortages and your supply will continue as normal as you transition to your new deal.
