With energy bills rising, and due to hit £2,800 in October, many households are trying to work out ways to bring their energy costs down.
One of the biggest questions is what sort of energy deal is cheapest. Energy deals come in two main types - fixed rate and variable rate.
As the name suggests, fixed deals mean your unit rate - how much you pay for the gas and/or electricity you use - is fixed for the length of the deal.
It also fixes the other big part of your energy bill - the standing charge, which you pay even if you use no energy at all.
However, if you use a lot of energy you can find you are given an additional bill on top of this.
Variable rate deals charge you fluctuating amounts, depending on how much energy you use.
In the past, most British homes were on fixed rate deals.
These were the most competitive, and where the cheapest prices could be found.
Variable rate deals were almost always more expensive, and were mostly taken by people whose fixed rate deal had ended.
That is because when a fixed rate energy deal runs out, energy suppliers move you onto a variable rate deal until you decide what deal you'll take next.
But a major difference between the two is that variable rate deals have a price cap, and fixed rates don't.
The price cap is set by regulator Ofgem, and limits how much a home using average energy amounts and paying by direct debit can be charged.
When energy prices were lower, the price cap wasn't so important, because most fixed rate deals were much cheaper than the price cap.
But when energy prices began to rise in the autumn of 2021, variable rate deals became - almost always - much cheaper than fixed rates.
Most British homes are now on variable rate deals and have bills limited by the price cap - £1,971 for the average home.
But with the price cap set to rise to £2,800 in October, many will be wondering if taking out a fixed rate now will save them money.
A Uswitch spokesperson said: "The truth is that unfortunately no one is completely sure whether sticking with the price cap or opting for a fixed deal will turn out to be better value.
“Based on the current predictions for the October price hike, if you find a fixed deal that is up to 35% more than what you currently pay, it might be worth considering it. However, prices remain volatile and the exact price increase is still unknown, so this figure may change."
Uswitch has the following advice for anyone thinking of a fixed rate deal:
- DO consider exit fees : You may change your mind about your fixed deal and want to switch. If this happens you might have to pay an exit fee. Not all tariffs have them but some do so make sure you know what yours is.
- DO consider the length of the deal Most deals are for 12 or 24 months. During this time the price cap could go higher or lower depending on market conditions, so consider how long you would like to stay locked in for.
- DO stay informed: It’s important to keep a close eye on the market and run regular comparisons to see what deals are on offer. By signing up to alerts, you will be able to stay close to what’s happening in the energy market and be informed when a good deal comes along.
- DON’T just go for the first deal you’re offered : Just because a deal is available doesn’t mean it is a good one or the right one for you. Consider the price of the deal, how long it is for and how important stability is for you right now.
- DON’T get a deal you cannot afford : make sure you can afford the deal you choose to take and do not feel pressured into taking a one that you will struggle to pay.
- DON’T just look at the direct debit amount : The price you pay through direct debit each month is usually based on the estimated amount you will use over a year and may not be the actual cost. Make sure you look at the unit price and standing charge so you can understand how much you will be charged for your energy usage and how it differs from what you are currently paying.
The Uswitch spokesperson added: "Some households may prefer to pay over the odds to have the stability of a fixed deal that will cover next winter when their energy use will be higher but it’s crucial that you don’t feel pressured into taking out an expensive fixed tariff if you will struggle to manage the cost.
“It’s important to keep a close eye on the energy market and run regular comparisons to see what deals are on offer. By signing up to alerts, you will be able to stay close to what’s happening and be informed when a good deal comes along.”
