Standard variable tariffs are often the cheapest on the market and their flexibility enables you to switch away for free if your current provider instigates any prices hikes. But what are the cheapest variable tariffs on the market and how exactly is the billing calculated? Read our guide below and decide whether a standard variable tariff is the right energy deal for you.
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.