Should I fix my energy bills? Pros and cons of fixed tariffs

Cast your mind back a few years, before the energy bill crisis added hundreds and hundreds of pounds to the cost of our electricity and gas use. You might remember that people like me were always going on about switching and fixing your energy.

The idea was simple. Competition in the market meant it was easy for those out of contract to move their supplier with a couple of clicks for a cheaper deal. As long as you had access to the internet, the whole process of comparing different prices and picking a deal took no more than 15 minutes. 

And the biggest savings were for those that not only moved to a different company, but who also fixed their tariff. These were pretty much always cheaper than the variable rate tariffs, which were limited by a price cap.

Though the final bill was dependent on actual usage, a fix meant the standing and unit charges were locked in, protecting you from any future hikes for the length of the deal. It was a big money saver and a no-brainer for anyone who wanted to cut what they pay.

Well after a long, long period where rising wholesale prices forced some big name suppliers to go bust (leading to a pause in the ability to switch) and government intervention such as the Energy Price Guarantee (which added a maximum charge that was below the price cap), we’re beginning to see the return of fixed deals, and even switching.

This is good news, but with a few caveats. For a start some of the deals are only for existing customers, and the comparison websites won’t necessarily have these listed on their pages for you to see. Though we’ll hopefully be seeing more open market deals, you’ll largely have to rely on what your supplier offers you, if it offers you anything.

There are also some huge exit fees, often around £150 for a locked-in dual fuel contract (that’s both gas and electricity). Previously these were around the £50 mark, which made it easier to ditch and switch if a really good deal appeared elsewhere. With these charges you won’t be looking to move until the fixed term ends.

But the biggest difference is how much you’ll save. The fixes that have begun to appear aren’t necessarily that much cheaper than variable tariffs, if at all. They’re all actually pretty close to what the cap is at the moment. It means you will not currently be saving hundreds of pounds a year through a fix.

And this is where an added layer of complication comes into play. The energy price cap is reviewed every three months, with the next change happening at the start of October, and another in January next year.

Though the October rate is likely to be not too different to the one that began in July (if anything it should be less), it’s harder to predict what’ll happen in the new year and beyond.

If prices across the next 12 months are all lower than the current price cap, and by extension probably the available fixed deals at the moment, it would mean that staying on a variable rate tariff will work out cheaper than locking in now.

Of course there’s a big risk that comes with this. Because what happens if the latest long term forecasts are way off? What happens if there’s another worldwide crisis that forces prices up again? Well, staying on the price cap tariff will mean your bills increase to higher rates once again.

So even though the new fixes might not necessarily be saving you cash versus doing nothing, they will give you some surety in what you’ll pay for the next 12 months. And that might be more important to you than the potential for lower bills later on.

A final point—it’s important to remember that when I talk about falling price caps and cheaper fixed deals, that’s in relation to the last few years. We’re still paying much higher prices now than ever before, and it’s unlikely we’ll see them drop back to those levels any time soon, if at all. 

That means it’s vital you still do what you can to reduce your energy usage as that’s going to be the key way to cut your bills.