Should I fix my energy prices to save money?

In the midst of an energy crisis, is a fixed-rate tariff still an option?
  • We earn a commission for products purchased through some links in this article.
  • Should I fix my energy prices is an important question to ask yourself in the midst of the energy crisis.

    Often, the best way to save money on energy bills is to opt for a fixed-rate energy tariff – if prices go up, yours stay the same until the end of the deal. But in the current energy market, does this advice still stand? In theory, fixed-rate energy deals can protect you from increasing energy prices and help you budget. For the duration of this type of energy tariff, the amount you pay per unit of energy won’t change.

    However, the current energy crisis means experts are issuing different advice about fixed tariffs. Many households concerned about how much their energy bills will cost will need to deploy a different strategy to keep their bill down. Laura Suter, head of personal finance at AJ Bell, says: “When the energy price cap changes in October average household energy bills are now predicted to rise to £3,000. The current Russia/Ukraine crisis has pushed energy costs higher and they could go above that.”

    Should I fix my energy prices?

    You do not need to fix your energy prices right now. The energy crisis means that there are no good fixed-rate deals available at the current time. Fixed-rate tariffs have traditionally been popular as they protect households from energy price rises. If you’re on a fixed rate tariff, changes to wholesale gas and electricity prices won’t affect what you pay. A fixed tariff fixes the price you pay per kilowatt hour (kWh) of energy for the duration of the plan. It doesn’t mean your bill will be the same each month – that will depend on how much energy you use.

    In normal market conditions, fixed tariffs often work out cheaper than standard or default tariffs. But if you’re looking for a new energy deal at the moment, you’ll find this isn’t the case anymore. This is because energy companies can’t risk offering keenly priced fixed rates right now. If energy prices rise further – and they are likely to – energy companies will lose money on these deals.

    Sarah Broomfield, energy policy expert at Uswitch.com said: “Fixed energy tariffs are traditionally the best value deals on the market, but this all changed when the energy crisis began last autumn. The rise in wholesale energy prices has meant that it is untenable for suppliers to offer deals at the rates they had been. This resulted in the price of fixed tariffs increasing drastically. Currently, standard variable tariffs are the cheapest deals on the market because the rates are limited by the price cap set by Ofgem. The cap limits standing charges and unit rates that suppliers can charge for SVTs, while there is no limit to how much they can charge for fixed energy tariffs.”

    Most suppliers have stopped offering fixed rates, while the small number that still do have hiked the prices. For example, Scottish Power’s Fixed Price May 2023 M2 tariff now costs £3,500 a year for average use. In comparison, the energy price cap is currently £1,277 a year, although it rises to £1,971 from 1 April. It will then change again from 1 October.

    Should I switch to a fixed energy tariff amid the current energy crisis?

    Experts advise against switching to fixed-rate energy tariffs at the moment, as they are just too expensive. Scott Byrom, chief executive officer at TheEnergyShop.com, explains: “With the new energy price cap level now set at an average bill of £1,971 from 1 April 2022 until 30 September 2022, staying on a standard variable tariff is by far the cheapest option to keep your bills down for the next six months. Beyond that, when the cap changes again from 1 October, we are currently seeing extremely volatile movements in wholesale energy prices, so there is a huge premium to fix right now.

    “We would advise consumers to ride out this storm and wait to see how wholesale gas prices settle as Europe moves into Spring/Summer when demand falls and the world has time to come to terms with how to navigate global energy markets as the situation in Ukraine unfolds.”

    In truth, even if you want to switch tariffs, you may find it very difficult. Most price comparison websites, including our sister brand GoCompare.com, have paused their energy switching operations until the situation settles.

    Even the energy suppliers themselves say consumers would be better off staying with their current supplier. A search for fixed energy tariffs on British Gas’ website leads to a message saying that prices are too high for it to offer new customers a competitive deal. It also states that staying with your current energy supplier will make more sense.

    What happens if my fixed tariff is due to expire soon – should I fix my energy prices again?

    If you’re currently on a fixed energy tariff, you’re one of the lucky ones. You won’t see any increase in prices until your fixed rate ends. Energy policy expert Sarah Broomfield says: “When your fixed deal is due to expire, your supplier will notify you and then automatically roll you onto their standard variable tariff. You will be free to switch to another deal if you wish to do so, but staying on the standard deal at the moment is most likely the cheapest option.

    “You may find that your supplier contacts you to offer you a special ‘customer-only’ fixed deal. We have seen some short-lived existing customer-only fixed-rate deals from some suppliers that have been better value than tariffs available to the wider market, but generally, they are still more expensive than the April cap.”

    Whatever tariff you’re on, your bill will be impacted by how much energy you use. So, the key is to try and use less energy.

    Is a fixed energy tariff worth it?

    In normal times, a fixed energy tariff protects you against potential increases in energy costs. But you won’t benefit if prices fall. Being on a fixed-rate tariff can help you manage your household budget. This is because the rate you pay per unit of energy won’t change. Although fixing is a gamble – it can save you money. So, when the energy market returns to normal, it may be worth comparing fixed-rate tariffs. But for now, the best thing you can do is sit tight on your energy supplier’s standard tariff. You’ll be protected from surging energy prices, to a certain extent, by the energy price cap.

    Scott Byrom says: “If the situation settles, there may be cheaper fixed deals to take advantage of pre-Winter 2022. If not, you have kept your bills significantly lower between April and October and can review your next steps accordingly.”

    Video of the Week