Fixed rate energy tariffs
Fixed rate energy tariffs (also known as fixed price plans) are a popular choice nowadays, as they offer customers a safeguard against rising energy prices.
This guide is intended to provide general guidance only. It is not intended to give you advice on your personal financial circumstances. You should seek independent professional advice if you’re unsure about anything mentioned in this guide or what choices to make.
Fixed rate energy tariffs guarantee that the costs per unit (and possibly the standing charges) of your energy won’t rise for a given period, regardless of what happens to prices in the wider energy market. This set period is usually one or two years, but could be up to four years.
Does a fixed rate energy tariff mean my monthly payments will stay the same for the duration of my contract?
No – a fixed rate tariff doesn’t mean you’ll pay the same amount each month. It’s the cost of each unit (kilowatt hour/kWh) of energy you use that doesn’t change – not your Direct Debit payment or your monthly bill.
For example, you’ll probably use more units of energy in January than you would in August, because in January you’ll have the heating on and possibly cook more hot food – and you might be away on holiday in August. So even though your unit costs are fixed, your bill is still likely to be higher in January.
Even if you’ve agreed to pay a fixed amount each month and set up a Direct Debit to pay it, that amount can still change.
When you switch to a new provider, or start a new energy plan, your supplier works out your Direct Debit payment. They base their calculation on the amount of energy they expect you to use over the year, divided by 12 to find your monthly payment.
If your energy supplier notices that you’re using more energy than they expected when they calculated your Direct Debit, they’ll recommend raising your monthly payment. On the other hand, if you’re using less energy than they thought you would, they may suggest a reduction in your monthly amount.
What are the benefits of fixed rate energy tariffs?
Fixed rate energy plans are attractive because they can protect you from rising energy prices and help you to budget. They’re particularly attractive to people who like life to be predictable and want to know exactly where they stand.
Of course energy prices do sometimes go down. For example, if the price of oil falls, that can have a knock-on effect on electricity prices, as some power stations are fuelled by oil. However, as a general rule, price fluctuations average out over time to a gradual rise. And a fixed rate tariff can protect you from rises for the length of your contract.
At the moment, energy firms are having to meet various efficiency, green energy and investment standards set by the government, which are increasing their running costs. This means that prices are likely to rise by 30-40% or more* over the next few years, and a fixed rate tariff contract could help to cushion you against some of those rises.
Energy companies want you to join them. So they attract you, and other new customers, with competitive deals and offers. With some providers, their best offers may be available in their fixed rate tariffs, because they believe you’re more likely to stay with them at least until your fixed rate ends.
What are the disadvantages of a fixed rate plan?
Fixed price energy tariffs can sometimes be more expensive than variable rate plans. Basically, you’re gambling on prices rising during the period of your contract. If they do, you’re a winner. But if energy prices fall, which is not impossible, you might have been better off on a variable rate plan.
If you’re thinking about switching to a long-term fixed rate deal – for instance, one that offers you fixed prices for two years or longer – this is clearly a bigger gamble than fixing your prices for a short time.
Some fixed rate plans include exit fees (the energy supplier may call these something else, such as termination or cancellation charges, leaving fees and so on) which you’ll be charged if you leave before the end of your contract. Make sure you check before you sign the contract, because if you did decide to leave, substantial exit fees could outweigh any savings you’d make by fixing, particularly if you’re on a dual fuel contract and have to pay a separate exit fee for each fuel.
What happens at the end of a fixed price contract?
When your fixed rate plan is coming to an end, your energy supplier is legally obliged to get in touch with you in plenty of time (42 - 49 days before the end of your contract), to remind you that your plan will finish soon. In their letter or email they should advise you of three key points:
- You should consider all your options before deciding on another plan.
- What will happen if you don’t choose a new plan with either your existing supplier or one of their competitors.
- You can switch to another supplier without having to pay any exit fees.
Your supplier should not try to push you into choosing another of their own plans; they are supposed to leave it entirely up to you to find out what’s available and make your own decision.
If you want to stay with the same provider, you can visit your energy company’s website, or call their customer services, to find out what plans they have on offer. Otherwise you’ll need to visit comparison websites and check the ‘best buy’ tables in the Saturday newspapers to help you decide what to do.
If you don’t take any action to arrange a new plan with your supplier or another energy company, your supplier will generally move you on to their ‘standard’ plan, which usually has a variable rate rather than a fixed one. These plans tend to be very expensive and you can usually find a cheaper plan, even if you decide not to switch to a different provider.
I’m on a fixed rate tariff and I’m moving home. Will my energy provider let me keep my fixed rate?
Most providers will let you transfer your fixed rate contract to your new home. If you’re moving to a different area, the rates may be slightly different, but you should get a comparable saving.
If you are currently arranging to fix your energy rates but you know you’ll be moving soon, check with your energy provider to make sure you can take the deal with you.