Fixed-rate energy deals are finally making a comeback, returning to the market as bills begin to drop this month from their exorbitant levels.
A typical household’s energy bills fell by £142 a year (or 7 per cent) on October 1, after energy watchdog Ofgem reduced its price ceiling to £1,834.
The cap dictates the maximum amount energy suppliers can charge you for each unit of energy you use in England, Scotland and Wales.
Until recently, none of the fixed rate deals on the market would have saved households much money, so it was unwise to block them. But now a handful of energy companies are offering more attractive options.
So should you lock in your energy rate or wait in the hope that the energy price cap will fall further in the coming months?
It’s time to change? A typical household’s energy bills fell by £142 a year (or 7 per cent) on October 1, after energy watchdog Ofgem reduced its price ceiling to £1,834.
How do fixed agreements work?
If you lock in a fixed rate, the price you pay per unit of energy will remain the same for the entire term of the agreement, typically one or two years.
Often the daily fixed charge, which covers administrative costs, will also remain in place.
It doesn’t mean you can use as much energy as you want without paying more. But it does mean that you will be charged the same rate regardless of what happens to wholesale prices.
It always made sense to go for a fixed deal as they were usually much cheaper than having a standard tariff protected with a price cap.
Fixed rate tariffs largely disappeared after October 2021, when energy prices began to skyrocket.
Energy providers started bringing them back to the market in June, but they remained expensive until recently.
Where can I find the best deals?
There are currently around 22 fixed offers from ten providers, according to price comparison website Uswitch.
However, only two exceed Ofgem’s energy price cap and allow you to lock in a lower tariff: Octopus Energy’s Loyal Octopus 12 Month Fixed and Utility Warehouse’s Saver 7 Fixed.
Octopus Energy’s fixed tariff costs the average household £1,818, an annual saving of £16 on the current maximum price. It is only available to existing customers.
Utility Warehouse’s fixed deal costs an average of £1,775 a year, saving £59 on customers’ bills compared to the current energy price cap.
But there’s a catch: Customers must subscribe to two other products if they want to get the deal.
You must switch at least two of your existing mobile, broadband or insurance services to Utility Warehouse to unlock the rate.
Fixed rate tariffs largely disappeared after October 2021, when energy prices began to skyrocket. Energy providers started bringing them back to the market in June.
And which ones should I avoid?
As a general rule, you should avoid setting your rate higher than the current maximum price, says Natalie Hitchins of consumer advocate Which?.
Hitchins adds that consumers should think twice before staying longer than a year. She says: “If you are offered a deal, then it is very important to check the fare exit rates in case you want to walk away from that deal early.”
“Unfortunately, prices aren’t expected to drop significantly in the near future, so there’s no perfect time to fix it if you see a good deal.”
The most expensive deal on the market is Ovo Energy’s one-year fixed tariff and greener energy, which costs £2,084 a year for a home using a typical amount of energy.
This would add £250 to the average household’s energy bill. British Gas, E.ON Next and EDF Energy are currently offering offers that are above the existing maximum price.
Could the bills go up again?
Although costs have been falling, energy analyst Cornwall Insight expects the price cap to rise again early next year.
The average home energy bill is expected to rise by £64 a year to £1,897 for dual fuel direct debit customers, it warns.
Prices should remain largely stable, falling to a low of £1,781 in July next year, according to Cornwall Insight.
Ofgem’s energy price cap is reviewed every three months.
Squeeze: The average home energy bill is expected to rise by £64 a year to £1,897 for dual fuel direct debit customers
Natalie Mathie, energy expert at Uswitch, says that while fixed-rate tariffs may not offer huge savings, they could put your mind at ease. ‘Fixed rates may have prices similar to or slightly higher than standard variable rates. However, you have peace of mind that rates will not change for 12 months,” she says.
“Over the same period of time, the price of standard variable rates will change up to four times.”
He warns that the energy market is volatile, so it is difficult to predict whether fixed or variable rates will save more money.
Almost half of households want to switch to a fixed deal to have more certainty about their energy costs; that’s 14 million homes, according to Uswitch.
Joe Malinowski, founder of energy comparison service The Energy Shop.com, says customers should fix it for a year if they are risk-averse and can get a good deal.
He says: “If you’re a bit risk averse, then in general it’s probably the thing to do.” But be careful: don’t pay a premium or limit yourself to a ridiculously high exit fine.’
Most fixed deals have higher exit fees than variable fees. All currently available fixed tariffs have exit charges of at least £75 per fuel, with one EDF tariff charging customers £200 per fuel if they wish to leave their contract.
You should look at the per unit energy costs and ongoing charges of a tariff you are considering to see if the deal is right for you. You can do this on comparison websites such as The Energy Shop.com, Go.Compare or Uswitch.
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