Are you looking to switch for the first time or facing price increases and want to know what is the difference between fixed and variable tariffs and which is better?
Well, in 2018.. there were many price increases by a number of energy suppliers, it’s definitely time to switch and find a better deal – but what type?
Here are a few things you need to know first:
Standing charges – these are usually charges that is calculated on a daily basis, e.g roughly 15-30p a day. This is the cost for providing gas and electricity supply, regardless if you use it or not.
So you would calculate say, 20p x 365, which is £73 per year.
Unit rate/spend – this is when you pay for what you use, which gas and electricity would have different rates.
How does it usually compare?
(Please note, the above chart is for speculation purposes – based on gas prices between 3 to 4.2p)
Variable rates are normally lower than the market rate, to perceive as being ‘cheaper’, but in hindsight – it will eventually catch up to react to the market and simply surpass the rates of the fixed tariff in the long run.
I should probably point out that, this isn’t to say in anyway that ALL variable tariffs are bad, because at the end of the day, most of the variable tariffs does not tie you down to a contract, you can usually leave without penalty fee at any point.
At the same time, this is also to not say ALL fixed tariffs are good, you’ll still need to do your calculations as standing charges and unit rates will differ.
However, fixed tariffs are usually better in the long run, simply because the standing charge and the unit rate will be fixed, whereas both could increase in the variable tariffs as there is nothing to stop a company from doing that.
What else is there to consider?
This is why there are standing charges and unit charges, normally they either are well balanced out with the market trends, or you could have high cost standing charge, but low-cost energy rates.
For the live alone, never cook, eat out or rarely at home person
Well, if you’re someone who does not cook much and always eat out (I envy you), then it might make sense to go for a low-cost standing charge tariff, but that would normally mean higher cost in the energy you pay to use. Though, if you use a lot of heating, or any other appliance often – then probably avoid it.
This can also be good, if you’re rarely at home, living alone, or frequently on business trips (I envy you very much), as you would not spend much energy anyway, and you’ll pay minimal by going for low standing charging tariffs.
For big families and big users
If you inevitably must use a lot of energy to cope with your daily needs, then you could always go for certain tariffs that have low energy rates, but higher than usual standing charges.
You’ll still need to do your calculation to make sure the amount of energy you spend will eventually work out cheaper by going for a high cost standing charge and low cost energy rate, as every family and individuals’ energy use are different.
Gas & Electricity differences
Lastly, you’ll need to find out (or at least you should know), if your oven, cooker, heater is gas or electric? Gas is actually 3 times cheaper than electricity, used to be even 4 times cheaper and probably more in the past.
So, if you have gas setups for your appliances – great! Try to stick to cooking/reheating your meals with gas, rather than electricity.
If you’re stuck with electricity, then there’s not much you can do other than trying to find a cheap electricity supplier.
You can see that variable tariffs tend to be cheaper in the beginning, and if you’re very active with switching and taking advantages of the offers, then go for it – but for those who prefer to pick a good deal and not look back at it for 1-2 years, then fixed is the way to go.
The longer the fixed tariff, the more it’ll cost – in exchange for a fixed price with no increases during the fixed period. So, it’ll depend on what 1 or 2 year tariffs are on offer, and where you think the energy prices will go, but it’s very rare that we’ll see prices ‘drop’, instead you’ll just see prices freeze at the rates they are at. Prices are usually affected by supply and demand (of course), and the cost of generating it (of course, again).
So if you’re a genius, who can create energy efficiently at low cost, you’ll be one very rich genius, as our demand for energy can only increase with the growing population and technology we use it for.