When you start to compare energy suppliers, you’ll quickly come across a whole load of jargon around fixed-rate deals.
If you have a home, you’ll need energy. If you need energy, you’ll need a tariff. And so if you want nice things like lights and boiled kettles (you know, the good stuff!), you’ll need to know what fixed-rate tariffs are so you can be most informed to get the best energy deal going.
Once you’ve finished reading our wisdom, you’ll too be a guru on fixed-rate energy prices.
Fixed-rate tariffs mean exactly that: the price you pay per unit of energy consumed is fixed right from the start of your contract with your energy supplier. Units of energy are measured in kilowatt hours, or kwh.
Tariffs are advertised as the price per unit of energy and your bill is costed according to use. If you’re looking for cheap energy, the best deals will cost the least per unit. Fixed-rate deals mean you’ll always pay the same unit price for your energy. That’s not to say your bill will always be the same – that’ll depend on how much energy you use, with costs typically being higher in winter.
Bear in mind your bill is also made up of standing charges, which is the base cost of your home being hooked up to a central energy supply – usually the National Grid – in the first place.
Variable-rate tariffs, on the other hand, mean that the unit price you pay for energy can vary month on month (or quarter on quarter if that’s how you get your statement). Unit prices depend on market forces which affect the wholesale price of energy, which could be anything from political events to supply and demand issues. So, they’re less predictable or stable.
The energy market fluctuates. Therefore, at times where cheap energy is rife, then you could really benefit from a lower price; but prepare to pay more as well if that’s the way prices swing.
Whether you should opt for a fixed-rate or variable-rate tariff will depend on your personal circumstances and preferences, but you could start by asking yourself a few questions: do you like a gamble? Are you interested in the global energy market’s wholesale prices? Do you like the freedom of not being contract-bound?
If yes, then it’s possible a variable-rate tariff would suit you. You’ll be free to switch providers any time you spot a new deal, so if you’re savvy you can stay ahead of the curve even when global prices rise.
But to back fixed-rate tariffs’ corner, pretty much every energy supplier offers them, meaning that deals are competitive. So, if you’re looking for cheap energy then you’ll likely be able to save money here. Your energy supplier must also tell you when your contract is up for renewal and allow you to switch if you find a better energy deal elsewhere. You should just be aware that if you want to leave your contract early, you’ll likely incur early exit fees.
With fixed-rates, good energy deals boil down to how long your contract is.
Energy contracts typically range from a year to eighteen months, but you can find them for up to two, three or even five years. When running your energy comparison, filter your search by how long you want to fix energy rates for.
Research carried out by Which? shows that long-term deals tend to not be long-term bargains. Because the energy market is competitive, there’s usually another provider offering a cheaper deal than your current one. If you switched providers annually, taking out one-year contracts at a time, it’d be easy to compare the best energy deals going and pick the one that’ll save you most money. So, each year you’ve got the crème de la crème of energy tariffs (if there is such a thing – we like to think so).
However, if you stick with your energy supplier for several years, you’ll probably sit there ogling at cheap energy deals advertised by other companies which you can’t access, as you’re locked in a long-term relationship with your current tariff. Or, perhaps, you’ll be doing something much more interesting – whatever floats your boat.
2020 has been nothing short of unpredictable. Are you someone who likes stability, particularly in times of uncertainty? If so, then fixing your energy prices for the next year could be a smart move as you’ll be able to plan and budget more effectively. Though keep in mind this vital take home: you’re best off not locking yourself into a long-term contract.