With energy prices fluctuating, understanding the difference between these two options can help you make an informed choice and save money. Let’s dive into how each type of tariff works and why, in the current climate, a fixed tariff might be the best option.
What Is a Fixed Energy Tariff?
A fixed tariff means that the rate you pay per unit of energy (kilowatt-hours, or kWh) is locked in for a set period—typically 12, 24, or 36 months. This doesn’t mean your bill will stay the same month to month (that depends on how much energy you use), but the price per unit remains constant throughout the contract.
Pros of Fixed Tariffs:
- Price Stability: No matter what happens in the energy market, your rate won’t change. This gives you peace of mind, especially when energy prices are on the rise.
- Easier Budgeting: Knowing your rates are fixed makes it easier to predict your future bills and manage your household budget.
- Protection from Price Hikes: If energy prices rise—something we’ve seen recently—you’re shielded from those increases, keeping your costs under control.
Cons of Fixed Tariffs:
- No Benefit from Price Drops: If energy prices fall during your contract, you won’t see a reduction in your rates.
- Early Exit Fees: Many fixed tariffs come with exit fees, meaning you’ll have to pay a charge if you switch to another tariff or supplier before your contract ends.
What Is a Variable Energy Tariff?
A variable tariff allows your energy rate to fluctuate in line with market conditions. Your supplier can increase or decrease the price per unit of energy depending on wholesale energy prices or other factors.
Pros of Variable Tariffs:
- Benefit from Price Drops: If energy prices decrease, your bill will reflect those savings, giving you a lower rate.
- Flexibility: Most variable tariffs don’t lock you into a contract, and you’re free to switch suppliers without paying exit fees.
Cons of Variable Tariffs:
- Price Uncertainty: Your rates can increase at any time, making it harder to budget and predict future costs.
- Higher Risk of Price Increases: With recent trends in the energy market, there’s a strong chance that prices will go up, which could lead to much higher bills.
Why Are Energy Prices Rising?
Energy prices have been especially volatile in recent years due to several key factors:
- Global Gas Price Increases: Much of the UK’s energy comes from gas, and global prices have surged due to supply issues and increased demand.
- Geopolitical Events: Conflicts like the war in Ukraine have further strained energy supply chains, pushing prices higher.
- Inflation and Supply Chain Disruptions: Rising costs for materials and labor have increased the cost of energy production, which is passed on to consumers.
Given these factors, energy prices are expected to remain high for the foreseeable future. In this context, a fixed tariff offers valuable protection from further price increases, allowing you to lock in today’s rates before they go up again.
Which One Should You Choose?
Your choice between a fixed and variable energy tariff depends on your financial situation and tolerance for risk:
- Choose a fixed tariff if you value stability and protection from future price increases. In the current climate of rising energy costs, locking in your rates could be a smart move to avoid paying more down the line.
- Choose a variable tariff if you’re flexible and willing to take a risk. If you think energy prices might drop and you want the freedom to switch without penalty, a variable tariff might suit you. However, with prices expected to stay high, this comes with the risk of paying more as rates rise.
Conclusion: Why Fixed Tariffs Make Sense Right Now
With energy prices soaring and expected to stay high, switching to a fixed tariff can offer peace of mind and financial stability. It shields you from unpredictable price hikes and helps you manage your household budget more effectively. At ismybillfair, we’re here to help you compare tariffs and ensure you’re getting the best deal possible.
