Unlike with a fixed rate deal, with a standard variable tariff, the price per kilowatt hour that you’re paying may vary from month to month. Standard variable tariffs are typically the most expensive plans offered by any energy provider and are most commonly used by people whose fixed rate deal has run out, or by people who have recently moved into a property. If you are unaware what kind of tariff you are on, the chances are it’s an SVT, and you should look into switching.
Standard variable tariffs are energy packages where the price per unit is dependent on the base rate of the Bank of England. If the rate goes up, then so do energy prices, but similarly if the rate decreases then users will benefit from lower fuel costs. As such, users of Standard Variable tariffs experience large levels of fluctuation
All energy providers are bound by Ofgem’s rules and conditions and are legally required to give you 30 days notice if they intend to implement energy price raises. If you are told that the amount you pay for your energy is set to rise steeply, then you should use the 30 day period to find a new provider and [switch to a cheaper variable tariff] that is better suited to your finances.
Ultimately, the suitability of a standard variable deal for you is dependent on what direction you perceive energy prices to be going and whether you mind not being entirely certain how much you pay for energy each month. If you believe energy prices will remain stable in the upcoming two years, then it is worth using a standard variable deal because the starting rate will likely be cheaper and you can always switch away for free if you are given notice of a price rise.
Similarly, if you think price rises will occur, but not particularly steeply, then it is still worth using a variable deal because you pay the same but with the added flexibility that fixed rate tariffs do not possess. However, if you think energy prices will rise steeply in the next two or three years, then a fixed rate deal may represent better value over the long term, though it still may be worth using a variable deal for as long as you can before prices rise so that you can fix till longer in the future.
Using a variable tariff also makes it difficult to plan your monthly budget for energy so if you are someone who likes to plan ahead with your finances, then a different tariff package may be better suited to you.