If saving 10% off your energy costs sounds appealing next year, now might be a good time to look into changing the way you pay your bill.
The energy price cap is set to rise by 20% in January to £4,279/year for a typical household, from its current level of £3,549/year, and while this makes no difference to families who pay for their gas and electricity via direct debit, customers who pay when they receive their bill will find their annual costs going up by an additional 1% in the North East.
And while that does not sound like a lot, it brings the extra cost incurred by choosing to pay for your energy by cash or card when you get your bill up to 10% or £250 a year more than the average direct debit user. That's more than £20 a month and £165 more per year than those who use prepayment meters, traditionally considered to be one of the most expensive ways to pay for energy.
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The energy price cap changes every three months and no one currently pays this, as the Government's energy price guarantee – which started on 1 October – gives a discount off these rates to all households, bringing down typical bills to £2,500/year, with the Government offsetting the difference. However, with the cap set to rise in January, the Government needs to increase the level of support to keep bills at a typical £2,500/year. From January, the discount will be 31.8p per kilowatt hour (kWh) for electricity (up from 17p/kWh), and 6.4p/kWh for gas (up from 4.2p/kWh).
The £2,500 often quoted for typical use is based on 2,900kWh of electricity and 12,000kWh of gas a year and is an average cost throughout the country. What you pay under the energy price guarantee depends on how much you use, which region you're in and how you pay for your energy.
While it might not feel like it, the Northern region actually pays the lowest bills in the UK, at £2434 for direct debit (£2500 UK regional average), £2519 for prepayment (£2,559 UK regional average) and £2,684 for payment on receipt of bill (£2,754 UK average).
If you are interested in switching to paying by direct debit, contact your energy supplier and they can make the switch for you. Your payments will be protected by the direct debit guarantee, which is there to protect you if things go wrong with your direct debit such as:
- If there are any changes to the amount, date or frequency of your direct debit the organisation will notify you normally 10 working days in advance of your account being debited;
- If an error is made in the payment of your direct debit by the organisation or your bank or building society, you are entitled to a full and immediate refund of the amount paid from your bank or building society;
- You can cancel a direct debit at any time by simply contacting your bank or building society. Written confirmation may be required. Please also notify the organisation.
The most common type of direct debit is 'fixed' monthly direct debit, but there is another option known as 'variable' monthly direct debit, available from some energy suppliers. The rates on both types of direct debit are the same, so you will benefit from savings by paying either way instead of when you receive your bill. The differences are:
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'Fixed' monthly direct debits spread costs over the year: Your supplier estimates how much you'll use over the next 12 months, and splits the payments equally so you pay the same every month, regardless of how much you use, as long as you stay within the estimate. The amount can change if your usage goes up or down significantly, or if gas and electricity rates change. Most people pay this way as they prefer to pay the same amount every month and smooth out the peaks and troughs of winteer and summer bills.
- 'Variable' monthly direct debits change depending on what you use: If you prefer to only pay for what you use and and prepared for seasonal variance, you might prefer to pay this way. To do this you must either a) have a working smart meter or b) give meter readings every month. Once your supplier has the readings from your meter, you will get a bill a few weeks before your payment is due to go out, letting you know how much your provider will take that month.
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