Is it best to stay on a variable energy tariff or move to a fixed deal?
12 December 2024 | OVO
With the energy price cap rising by 10% on 1 October 2024, many people are considering whether it's the right time to fix their energy prices. Homes could avoid the uncertainty of rising bills for the next year or so, as some fixed deals are now cheaper than variable tariffs.
But the question of whether to stick with the energy price cap or move to a fixed tariff is completely up to you. A lot of your decision-making will depend on whether you think the price cap will drop or rise again in the future.
Let’s take a look at the details to help you make up your mind.
What’s the energy price cap?
The first thing you need to understand before you make a decision between a variable or fixed tariff is the energy price cap.
The price cap is the maximum amount suppliers can charge you for each unit of energy and the standing charge – on a variable tariff. This is set by Ofgem, the energy regulator.
The energy price cap gets reviewed every 3 months, and currently stands at £1,717 for a typical household between 1 October to 31 December 2024.¹ This is an increase of £112 compared to the last price cap.
Nobody knows exactly what will happen at the next price cap announcement on 25 November 2024. But Cornwall Insight, a respected voice in the industry, will make a prediction. So it’s worth following them for updates.
What’s a fixed rate energy tariff?
A fixed rate tariff, also known as fixed price plan, sets how much you pay per kilowatt-hour (kWh). This is the unit for measuring energy. The reassuring thing about a fixed tariff is that its rates stay the same throughout your contract.
Most fixed deals last between 12 and 24 months, and during that time, your price per kWh won’t ever change. But that doesn’t mean your bill will always be the same – what you pay will depend on how much energy you use.
Lots of people choose a fixed tariff because they take the guesswork out of future bills, and avoid the impact of price rises. On the other hand, if energy prices drop, you’ll miss out on the savings.
And what’s a variable rate energy tariff?
If you’re not on a fixed tariff, you’re almost certainly on a variable rate tariff. This means your rates and standing charge can go up or down every 3 months in line with the energy price cap.
Some people prefer variable tariffs because they’re flexible. They don’t tie you into a contract, so you’re free to change tariffs or suppliers whenever you like – without paying any exit fees.
What does the price cap mean if I’m on a variable tariff?
Most customers on a variable tariff will have seen their annual costs go up on 1 October 2024, in line with the new price cap. But remember, your actual bills still depend on how much energy you use at home.
What does the price cap mean if I’m on a fixed tariff?
Nothing, because the price cap doesn't affect prices for fixed rate tariffs. If you're on a fixed rate, your prices will stay the same until your tariff ends.
Should I switch energy tariffs now or wait?
Traditionally, a fixed tariff was almost always cheaper than a variable tariff. But when wholesale energy costs started to rise at the end of 2021, fixed energy deals became more expensive than the variable tariffs protected by the price cap.
Now wholesale prices are lower than they were, more fixed deals are coming onto the market – and they could save you money. While some of the savings may be small, you might prefer to know what you’ll pay for your energy for the foreseeable future.
Whether to fix your prices or choose a variable tariff is a personal choice, and there are pros and cons to both. So let’s take a closer look:
| Fixed tariff | Variable tariff |
|---|---|
| Pay the same rate per kWh and standing charge for a year or longer. | Your unit rate per kWh and standing charge could go up or down, depending on wholesale energy prices. The energy price cap can also change every 3 months. |
| You’re tied into a contract for 12 months or more. | You’re not tied into a contract, so you’re free to change tariffs anytime. |
| Exit fees usually apply if you leave before the end of your contract. | No exit fees, so you can switch whenever you like. |
| Your prices are locked, so it makes it easier to budget. | Your prices could change, so it’s harder to plan your finances. |
How could I benefit if I choose to fix?
On a fixed rate tariff, you could:
- Potentially save money if the unit price and standing charge on your new fixed tariff are lower than your existing variable tariff. That said, if the price cap drops in the future, you won’t benefit from the savings.
- Get peace of mind knowing your unit price and standing charge will be locked in for at least 12 months. Your bills will only change with your energy use, not the price cap. This should make it easier for you to plan ahead and budget.
- Be protected from further price cap rises, as your unit rate and standing charge are set for the length of your contract.
With all this in mind, you should be ready to start shopping around and comparing the variable and fixed options available to you. If you need any help, you can try out this Should you fix energy? Calculator or contact our team.
How to get financial support
If you’re struggling financially or worried about your energy bills, please get in touch – we can help. We also have a Customer Support Package that includes financial help and guidance.
1 Figures are for how much energy customers paying by Direct Debit typically use (11,500 kWh for gas and 2,700 kWh for electricity). This will vary based on actual household use.
2 Figures are for how much energy customers on Pay As You Go typically use (11,500 kWh for gas and 2,700 kWh for electricity). This will vary based on actual household use.