Types of energy tariffs explained
The world of household energy can be a confusing place for most consumers. With dozens of suppliers offering the same technical product, but charging vastly different amounts for it, it is easy to find yourself confused. In this article we hope to break down some of the jargon and debunk some of the myths about energy switching and energy tariffs.
The reason you should be switching your energy
To save money. It’s purely that simple. The only way that you can ensure that you get a fair deal for your household gas and electricity is by shopping for a new deal. This applies to both those customers who are on standard tariffs and those who have switched in the past 12 months, but whose tariffs may soon be coming to an end.
So what are the myths about switching
- That I will have my supply cut off. Wrong. Switching supplier simply transfers account management and billing to a new company, there is no change to the physical delivery of your gas and electricity. The process is simple and Ofgem the energy regulator is continually pushing for the changeover to happen quicker. There are currently plans to make switching take as little as 24 hours. Just know that there is no chance you will switch then find your gas and/or electric supply switched off
- It is complicated. Switching is very very easy. Switching energy is a lot less painstaking than dealing with insurance, or bank accounts for example. If you have all the right information to hand you could be through the web form in as little as seven minutes or so. It would basically take you the same amount of time as it would to make and drink a cup of tea.
- I won’t save much money. This last myth doesn’t stand up to much scrutiny either. While it is true that if you are regularly shopping the market, switching every year and always making sure you don’t get caught on a standard tariff you may not see massive savings every year, the majority of people are not as meticulous as you and are usually stuck on an expensive standard tariff. With estimates suggesting that only 45% of the population have switched the savings we see are considerable. It is easy to save hundreds of pounds from your bills in just a few quick clicks.
- I am a renter, I cannot switch. Also false. If you pay the bills, and they are not included within the rent that you pay the landlord, then you have the power to switch. Many renters are spending hundreds more a year than they need to, and typically renters are the ones on tighter budgets who could benefit the most from the savings that they make.
- I have a prepayment meter, I cannot switch. This is also not true, and while prepayment tariffs are not as competitive as standard contracts there are differences in the discounts that suppliers will offer compared to one another, so it is still useful to shop around
I definitely want to switch my gas and electricity, what are the different tariffs that I should be aware of
The standard tariff
This is the type of energy tariff you do not want to be on. A standard tariff is a suppliers basic offering. Typically they are drastically more expensive than the cheapest discounted tariffs available. If you have not shopped for a new energy deal, your old fixed tariff has lapsed, or you have just moved into a property and are the new bill payer then you will be on a standard deal. If you fall into the latter camp be aware and forewarned about letters from an incumbent supplier telling you that you “need not do anything” as you’re all wired up on their tariff. This is a slightly deceitful trick meant to lull you into a sense of security, when you should be switching right away.
The cheap fixed deal
Over the last few years the cheap fix has dominated the energy tariff market. A cheap fix will usually be priced attractively to gather new business from new customers, and can often be hundreds of pounds a year cheaper than supplier standard deals. The fixed tariff will lock your rates until the fixed term period ends, at which time you must switch to a new tariff to avoid being rolled onto a standard deal.
The discounted variable
Less common these days is the discounted variable rate tariff. Historically these used to be cheap deals that suppliers would offer to grab new business whilst retaining the ability to alter the rates once the customer was acquired. Fortunately the popularity of the fixed deals has meant most suppliers cheapest tariffs are no longer discounted variables, however a few new suppliers still do take this route. A discounted variable, unlike a fix, offers you no protection from increasing rates so if the company decides that they need to increase their prices then most likely the rates of your tariff will be affected.
What is best for you
We would always advise that a cheap fixed deal is the best option. The cheap fixed offer means that you can forward plan your expenditure, safe in the knowledge that the rates and terms will not change. It gives you the freedom to pay and forget about your energy until the end of the fixed term, which can really provide some useful peace of mind. You must however set a reminder in your calendar for when the deal will expire, we advise 49 days prior. During this time you may shop for a new tariff and be unaffected by any cancellation penalties your old tariff may carry should you decide to switch.