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Fixed Rate Vs Variable Rate Tariffs: Which Should You Choose?

Fixed Vs Variable Rate Tariffs

With the rising cost of living, it’s more important than ever that you make the right choices when it comes to your household running costs.

One of the main utilities you’ll need to make a decision on is your energy supply and the type of tariff best suited to your home.

Fixed and Variable Tariffs Explained

There are a few different energy tariffs available in the UK, but amongst the most popular are fixed rate and variable rate tariffs. In this guide, we’ll provide you with a detailed comparison of fixed and variable rate contracts, highlighting how they work, their benefits and the types of properties they’re best suited to.

What Are Fixed Rate Tariffs?

Fixed rate energy tariffs are a common type of energy contract which features unit rates which do not change throughout the length of your contract. Fixed rate contract lengths are usually anyway between 1-2 years for domestic properties. For commercial buildings, fixed rate tariffs are required to last a longer period, usually up to 4 years in total.

Although fixed rate tariffs allow you to secure your energy rates for an agreed period, you should bear in mind that your monthly payments can still change as your bill is calculated by multiplying your unit rate by your energy usage. So, if like most people do, you use more energy during the winter period, you will be charged extra for the additional gas and electricity consumption.

You can find out more about whether you should fix your energy prices here.

What Are Variable rate Tariffs?

If you don’t set up an energy tariff directly with your energy supplier, you’re likely to be placed on your supplier’s default standard variable rate energy tariff. With this type of energy tariff, the cost of your energy unit rates and standing charge fees will fluctuate in line with wholesale energy prices.

So, you may benefit from cheaper energy rates in one month, but then the rates could increase in another. As well as being affected by the price of wholesale energy, energy unit rates can also be affected by price caps implemented by the energy market regulator, Ofgem.

What is the Energy Price Cap?

An energy price cap is a limit set by Ofgem restricting the amount that your supplier can charge you for the rate of gas and electricity that you use. These limits apply specifically to households on a variable rate tariff.

When comparing fixed rate tariffs, it’s worth checking how your estimated bills compare to the current price cap. As prices have increased, some fixed rate tariffs have been set above the current price cap rate.

As a result of rising energy wholesale prices, Ofgem recently increased the energy price caps by 54%, causing many homeowners to see a significant increase in their energy prices.

Fixed vs Variable Rate Tariffs: Pros and Cons

To help you choose between a fixed and variable rate energy tariff, here’s a breakdown of some of their main advantages and disadvantages:

Pros and Cons of Fixed rate tariffs

Pros

  • Fixed energy contracts can be cheaper other tariffs
  • Energy rates are fixed over an agreed period
  • No need to worry about your rates being affected by wholesale energy price fluctuations
  • Predictable billing
  • Direct debit discount available

Cons

  • Your energy bills can increase if your energy consumption increases
  • You won’t benefit from wholesale energy price decreases
  • Fixed price energy tariffs usually come with early exit charges

Pros and Cons of Variable rate tariffs

Pros

  • You can benefit from decreases in wholesale energy prices
  • Variable rate tariffs rarely have exit fees
  • Energy price caps help to restrict the amount you can be charged for your energy

Cons

  • Your energy prices can go up if wholesale energy prices increase
  • Bills can be unpredictable, making it difficult to budget
  • Less stability than fixed-price energy tariffs

Which energy tariff is best for your property?

To choose the right energy tariff for your home, you need to think about what you want from your energy tariff.

Are you looking for stability and the ability to budget with predictable bills? If so, a fixed rate tariff may be most suitable for you. Alternatively, do you want an energy tariff that doesn’t require you to commit to an agreed timeframe? In that case, you may be better suited to a variable rate tariff.

Regardless of which option you choose, the most effective way to find the best energy deal for your home is to compare energy prices online. Here at Love Energy Savings, we offer a free online comparison tool to help you find the best fixed-price or variable-rate tariff for your home. We can provide you with a quote for the best energy deals on the market in just a few seconds.

Try our free online comparison tool today to find the latest deals from our trusted suppliers.

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