One reason why price comparison sites have become popular is that the price of energy regularly fluctuates, which means that the amount suppliers charge changes too. You might think that you have found a cost-effective supplier, but discover some time down the line that their rates have altered dramatically without you noticing. The result can be that you end up paying more than you would have if you had taken advantage of securing a capped tariff or a fixed tariff. However, there are disadvantages as well as benefits when it comes to either option and weighing them carefully can help you decide whether they will help fulfil your need for cheap energy.
What is a capped tariff?
A capped tariff will provide you with a set rate of payment above which you will not be charged, even if there is an unfavourable market regarding the cost of gas or electricity. You might be charged less than the tariff depending upon the price of energy at any given time.
What is a fixed tariff?
A fixed tariff ensures that you are charged a price for energy that will not alter one way or the other, whether the market is favourable or unfavourable.
The advantages of a capped tariff
If the market for energy fluctuates in a manner that would have usually increased your energy bills significantly, or even slightly, you can rest assured that you will be unaffected.
Should the price of gas or electricity fall, you will benefit from a reduction in the price you pay for energy to reflect positive changes in the market.
The advantages of a fixed tariff
If you have a fixed tariff, you will find budgeting for your energy bills easy. You will know roughly how much money you need in order to pay your costs well in advance of the energy that your household consumes. Naturally your bill will still rise along with your energy consumption, but the rate you pay will not. In addition, you can put money aside if doing so makes dealing with finances easier for you than waiting to find out how much your bills are due to fluctuations in rates post energy usage. At the same time, the energy rate you pay will not increase even if energy prices rise and become sky high.
The disadvantages of a capped tariff
Cancel your capped tariff before the time agreed with your supplier at your peril as you may be charged a penalty for welching on your agreement. The fee charged will probably cost between Â£20 and Â£80, which could mean that any savings you have made previously with your tariff are not worthwhile. In addition, although a capped rate might secure you cheap energy if you are lucky, it just as easily might not. Your supplier is likely to offer cheaper tariffs than the capped tariff with which they have supplied you. Therefore, unless the market for energy works to your advantage you might wish that you had not opted for a capped tariff after all.
The disadvantages of a fixed tariff
The fixed tariff that you pay might be as much as 20% higher than the best deal with which your supplier could have provided you. Naturally, if the market for energy raises its gain significantly you might feel triumphant as a result, but this might not happen. You could end up feeling resentful about having to pay more than you would have had to if you had made a different choice.
In a similar manner to capped tariffs, fixed tariffs tend to last for a certain period, and there are penalties if you want to get out of the deal you have made earlier than expected. If you end up paying a penalty, you might find that you have not really made any saving on energy costs at all. Unlike capped tariffs, however, the fixed variety will not prove financially beneficial to you if energy prices drop.
Opting for a capped tariff or a fixed tariff could save you money by providing you with cheap energy. They might also help you plan financially while freeing you from anxiety over bills. However, both methods can be a gamble, and whether they are favourable or not is dependent on market fluctuations
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