Is it time to switch to a fixed-rate energy tariff?

Over the last couple of years, energy prices have never been far from the headlines. Heatable reports that the monthly average household cost of energy rocketed from £106 in October 2021 to £356 in January 2023 – much of this caused by the Russian invasion of Ukraine.

While the cost of gas and electricity has eased over the last 18 months, the energy price cap rose by 10% on 1 October thanks to an increase in the wholesale cost of gas. The cap is now set at £1,717 a year for a typical household that uses electricity and gas and pays by direct debit.

Remember that the energy price cap is NOT a cap on your bills. It works by capping the amount that a supplier can charge for each unit of electricity or gas and also caps the standing charge. The more energy you use, the more you will pay.

In recent weeks, many suppliers have begun offering “fixed” energy deals (sometimes called a “fixed price energy tariff”). While this won’t fix the total bill you pay every month, it will fix the amount you pay for each unit of gas or electricity that you use for the length of the contract.

So, is it time to switch to a fixed-rate energy tariff? Here are some factors to consider.

Many providers are now offering fixed-rate tariffs

As energy prices rose substantially in 2022, fixed-rate energy tariffs disappeared entirely. You will likely have ended up on a variable rate, with payments capped by a government Energy Price Guarantee, introduced in October 2022.

Since prices hit a peak in early 2023, they have fallen back – although the current price cap is still around 70% higher than the average household cost of a standard variable tariff in October 2020.

So, you may be looking for ways to save on your gas and electricity bills.

Thankfully, many providers are now once again offering attractive fixed-rate energy deals. Fixing your energy tariff can have several benefits.

Greater certainty and peace of mind

Firstly, fixing your tariff can give you greater certainty and peace of mind. Knowing exactly what your costs are going to be for a year or two can help you budget and provide you with the reassurance that your payments won’t change even if wholesale energy prices were to rise.

Bear in mind that you will usually be in credit with your energy supplier during the summer when your energy usage is low and use that credit up during the winter.

Fixing could help you to save money

Secondly, fixing your energy tariff could help you to save money. Some fixed-rate tariffs offer lower unit prices for gas and electricity than the current variable rates based on the energy price cap.

However, it’s worth bearing in mind that you may only save against current prices. Ofgem will change the energy price cap with effect from 1 January 2025, and again every quarter in 2025. So, if the cap were to fall in 2025, you may be left with fixed costs that are higher than the variable rate. And, as many providers charge exit fees, it could be expensive to end such a deal.

Conversely, opting for a fixed-rate deal now could shield you against rises in the price cap in the next year or two. Were the price cap to rise further, fixing now would protect you against such increases.

In many ways, fixing your energy tariff is much like deciding to fix your mortgage. You benefit from the certainty that you know what rate you will pay, and you protect yourself against rate increases. However, if rates come down, you could end up paying more than you need to, and face penalties for ending your contract early.

You don’t need to regularly read your meter

Fixing your energy tariff also means it doesn’t matter too much if you forget to read the meter. That’s because the price of each unit of energy will not change from month to month.

3 practical factors to consider before switching to a fixed tariff

If you’re thinking of switching to a fixed-rate tariff, here are three factors to consider.

1. You may need to install a smart meter. Some providers offering low-cost deals will require a smart meter to accurately charge for your energy usage.
2. You may have to act quickly, as some fixed-rate deals may only be available for a short period.
3. The exact savings you make will depend on your location and your energy usage.

Shopping around can help you to find the most appropriate deal for you. If you have a few bills to hand and understand what your annual usage is (or what you have paid in the last year), this can help you to make accurate comparisons between the different deals on offer.

Even if there’s not much difference between the rate you are currently on and the deals available, you might value the security of knowing how much you will pay for a defined period.

Get in touch

If you’d like to find out how we can help you make more of your wealth and achieve your long-term goals, please get in touch.

Email contact@caliberfm.co.uk or call 01525 375286 to speak to one of our team today.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.