Over the past few years, you may have seen your energy bills rise significantly. According to figures published by Heatable, the average household energy costs in the UK rose from £106 in October 2021 to £356 in January 2023.

Happily, the price of gas and electricity is lower than it was last winter. However, BBC News has reported that a typical household’s annual energy bill could increase by £149 under the new energy price cap, which rose from £1,568 to £1,717 a year (10%) on 1 October.

The government is also forging ahead with planned cuts to the Winter Fuel Payment, which aims to help pensioners pay their energy bills during the winter months. This could mean that millions of retirees will lose this annual payment – currently worth up to £300, paid tax-free.

The good news is that many household energy providers are now offering attractive fixed-rate energy tariffs that could help you take control of your energy costs. These deals all but disappeared when wholesale energy prices were at their highest, but there are currently plenty of options to choose from.

So, read on to find out more about fixed energy tariffs and discover six pros and cons to help you decide if it’s time to switch.

You can choose between fixed- and variable-rate tariffs

An energy tariff is how a provider charges their customers for the gas and electricity they use. Your tariff includes a “standing charge” and a “unit price”.

The standing charge is a fixed daily fee for supplying energy to your home, regardless of your level of consumption. The unit rate is the cost of the gas and electricity you use charged at pence per kilowatt hours (p/kWh).

There are two main types of tariffs:

Fixed-rate

  • Your standing charge and unit rates are “fixed” for a defined term.
  • Your fixed-rate contract lasts for a set period (usually 12-18 months).

Variable-rate

  • Your standing charge and unit rates may fluctuate in line with wholesale prices and changes in the price cap.
  • A variable rate contract is typically open-ended.

It’s important to note that with a fixed-rate tariff, your standing charge and unit rates are fixed – not your bill. The more energy you use, the more you’ll pay.

Similarly, the price cap – set by the energy regulator Ofgem – limits the amount that providers can charge for each unit of gas and electricity you use. The figures you see quoted in the headlines are an average for a “standard” home. Your bill could be higher or lower than these as how much you pay depends on the amount of energy you use.

3 pros of choosing a fixed energy tariff

There could be several advantages of switching to a fixed rate, including:

1. Price certainty could help you budget

Fixing your tariff means that, while your bill may vary, the cost of your energy will remain the same each month.

So, by multiplying the amount of energy you‘ve used by the unit rate, plus the standing charge, you could easily calculate your monthly bill and set aside funds to cover it.

In this way, switching to a fixed-rate tariff could be a useful way to keep tabs on your budget.

2. You could protect yourself from price hikes

Fixing your tariff guarantees you the same rate per unit of energy for the full term of your contract.

So, if your supplier raises their prices, or Ofgem increases the price cap, your costs won’t change.

This could provide valuable peace of mind, especially during periods of economic uncertainty, such as the current cost of living crisis.

3. Fixing your tariff could save you money

Some fixed-rate tariffs offer lower unit prices for gas and electricity than the current variable rates. Now that more providers are offering fixed energy deals, you could save money by shopping around.

However, when calculating which tariff offers you the best value for money, it’s worth remembering that variable rates could fall if the energy price cap is reduced. On the other hand, your fixed rate will remain the same for a defined term.

3 cons of choosing a fixed energy tariff

Choosing a fixed-rate tariff could have some disadvantages, including:

1. Early exit fees may apply

If you decide to switch to a different tariff or provider before the end of your fixed-rate contract, you might face early exit fees. These are usually between £30 and £50 per fuel. So, you could pay around £100 if you switch tariffs for both gas and electricity.

Not all providers impose these charges, but it’s worth checking before you commit to a new tariff. There may be a “cooling off” period, during which you can leave your contract without incurring an early exit fee.

2. You could end up paying more than you need to

Knowing what your costs will be each month could provide valuable peace of mind. However, if energy prices fall, you might find yourself locked into a higher rate than the average variable tariff.

What’s more, some providers might charge a premium for longer fixed-rate contracts, and if you decide to switch, you may incur early exit fees.

Yet, if certainty and security are important to you, you may decide that a fixed-rate deal is a worthwhile investment.

3. You need to act fast if your deal is about to end

If your fixed term comes to an end and you take no action to renew it or move to a different tariff, your provider will usually move you to their standard variable-rate tariff. This could mean that your energy costs will increase.

So, you’ll need to act quickly to secure a competitive rate. Unfortunately, this may lead you to rush into a decision rather than taking your time to shop around. As a result, you might end up on a new tariff that may not be the most cost-effective option.

Ultimately, your decision about whether to switch to a fixed-rate energy tariff is likely to depend on your individual circumstances and preferences.

Get in touch

If you’d like help reviewing your finances and creating a plan to make more of your wealth, please get in touch.

Email hello@intelligentpensions.com or call 0800 077 8807.

Please note

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