Choosing a fixed or variable energy tariff

What is an energy tariff?

What is a unit rate?

A unit rate is the cost of a kilowatt hour (kWh). That's what energy companies use to measure your usage. 

What is a standing charge?

A standing charge is a daily, fixed fee. It covers things like the cost of the wires and pipes that carry energy from the grid to your home, and the government schemes that help people who can't afford to pay for their energy. 

There's one standing charge for gas and another for electricity, and they're added to your bill each month. You need to pay the standing charge even when you're not using energy, for example, when you're on holiday. 

There are a few tariffs out there that don't include a standing charge – but the unit rate tends to be more expensive. If you're thinking of switching to one of these, double check the other fees that are part of the deal, just to make sure you're really making a saving.

What is a fixed tariff?

A fixed tariff can be good for budgeting, because you don't have to worry about the price of energy changing. But don't forget, while your unit rate is fixed, the amount you pay is still based on how much energy you use. So if you use more energy one month, you'll have to pay more to cover it.

Some fixed tariffs charge exit fees if you leave before the end date

A fixed-rate tariff usually has an exit fee, also called a ‘cancellation’ or ‘termination’ fee, which you’ll need to pay if you switch to another supplier before your contract ends.

But if you're thinking of switching before your contract is up, there's a 49-day window at the end of every fixed contract which means you can switch away without being charged. As a switch usually takes 21 days, you'll need to switch at least 3 weeks before your contract ends.

Shop around when your energy contract is coming to an end

Keep an eye on the date your contract ends – you can find this on your energy bill. If you don't choose a new tariff before the end of your contract, your supplier will switch you to their default tariff, which is usually a 'standard variable tariff', or 'SVT'. With many suppliers, this is the most expensive tariff they have, which is why some people call this a 'loyalty tax'.

Although few people choose to be on an SVT, in 2019 Ofgem, (the energy regulator) found that 53% of UK households are on their suppliers' default tariff, and half of those have been on that tariff for more than three years. That's a lot of people who could be saving on their energy bills just by shopping around.

Don't get caught out – find a new deal if you're coming to the end of your fixed contract. Or if you've just moved into a new home, get in touch with your supplier and see what other tariffs they offer.

The variable tariffs you're likely to find when shopping around for your next energy deal usually offer better rates than most supplier's standard variable tariffs (SVT).

What is a variable tariff?

If you're on a variable tariff, your supplier must give you reasonable notice if it plans to put prices up. That means you always have time to switch energy supplier if you can get a better deal.

Variable rate tariffs are also flexible, so you're not locked into a contract. That means you're free to leave whenever you want, and there's no exit fees. Win win.

Pros and cons of a fixed and variable energy tariff

Different energy tariffs work for different households. To help make your decision, we've outlined the pros and cons of both tariffs.

Fixed tariff

Pros

• a fixed unit rate can protect you from price rises

• it's easier to budget because you know roughly how much you'll pay for your energy each month

Cons

• if your supplier drops their prices, you'll be stuck paying more for your energy

• you'll be charged exit fees if you leave your contract early

• if you don't do anything at the end of your contract, you'll be rolled on to a more expensive standard variable tariff

Variable tariff

Pros

• if your supplier drops their prices, you'll pay less for your energy

• you aren't locked into a contract, so you're free to leave when you want

• no exit fees

Cons

• if your supplier increases their prices, you'll pay more for your energy

• it's harder to budget as the price of your energy could change

So there you have it. Hopefully you have enough information to go out and find a tariff that's right for you.