Everyone wants to be sure that they are getting the cheapest gas and electricity possible, but it’s not always the easiest thing to guarantee. In fact, having to choose between fixed rates and variable rates can often feel like gambling. In order to choose between the current rate options that are being offered by the nation’s top gas and electricity suppliers, it is essential to have a solid understanding of the advantages of both fixed and variable energy tariffs. Once you know which type of tariff seems to fit your budget, you can make an informed decision which company to turn to for your service.
Also known as “standard” rates, when you choose a plan for your gas and/or electric service with a variable rate, the amount you pay will go up and down according to the current cost of energy as it is set by suppliers. You are probably familiar with your bills going up and down depending on the time of year and the amount of gas and electricity you use in your home, but you may not have been aware that your bills are also influenced by a constantly fluctuating rate. Much like variable-rate mortgages, choosing a variable tariff for your energy always carries a certain risk. Since you don’t know what factors will influence the rise and fall of energy costs, you may end up paying much more money per month than you are paying right now. On the other hand, however, prices could go down and you could end up paying much less.
Plans with a fixed rate take away much of the guesswork common to variable rates. Instead, you know in advance exactly what rate you will be paying for gas and electricity during the entire period of your contract (usually one to four years). Again, your bill won’t stay exactly the same from month to month because it will still vary depending on how much energy you use, but the amount you are charged per unit of energy (measured in kilowatt hours or kWh) will remain fixed. Fixed rates are often a little higher than the current variable rate offered by most suppliers, and they are usually significantly higher than the cheapest rates you can find by doing some research online. They rely, however, on the trend that energy prices almost always go up over time, so they almost always end up being a good savings in the long run. Fixed rate tariffs also usually come with the caveat that if you decide to cancel or switch before the term is up, you will have to pay a penalty. These fees, while usually nominal, will almost always erase any savings that you built up by going with the fixed rate in the first place.
Choosing between variable and fixed rates
Making the decision between signing up for a fixed rate plan or a variable rate plan will boil down to an individual choice by each consumer. According to The Guardian, when you sign up for npower’s most recent fixed rates, you can save up to £100 on average in a year as compared to the current forecasts for variable rates. Just as variable rates are a bit of a gamble, however, forecasting whether a fixed rate will be a good deal is like looking into a crystal ball. While it is generally safe to assume that energy prices will continue to rise, the rate at which they will go up is anyone’s guess.
Your best bet if you do decide to choose a fixed rate is to choose one with the longest term you can find. npower’s latest fixed rate guarantees prices through December 2015 while British Gas currently offers a plan that goes through April 2015. While these fixed tariffs might not offer you the best savings right away, the length of their terms all but guarantees they will be cheaper than variable rates eventually. Even if you only save money for the last year of your contract, it can still easily cancel out the extra amount you paid in the first couple years. Predicting how to get the cheapest gas and electricity is anything but a science. Still, if you do a little research (and have a little luck) you will hopefully find a great deal.
Sam Jones the author suggests to readers wishing to find the cheapest gas and electricity you can get more info about energy prices from uSwitch.com and compareall the main providers for some great deals.
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