Fixed rate energy deals are finally making a comeback and are making their way back into the market as bills start to come down this month from their tear-jerking levels.
A typical household’s energy bill fell by £142 a year – or 7 per cent – on October 1 after energy watchdog Ofgem cut its price cap to £1,834.
The cap dictates the maximum amount energy suppliers can charge you for each unit of energy you use in England, Scotland and Wales.
Until recently, none of the fixed rate deals on the market would have saved households much money, so it didn’t make sense to lock them in. But now a handful of energy companies are offering more attractive options.
So should you adjust your energy tariff or hold off in the hope that the energy price cap will drop further in the coming months?
Time for a change? A typical household’s energy bill fell by £142 a year – or 7 per cent – on October 1 after energy watchdog Ofgem cut its price cap to £1,834
How do fixed deals work?
If you lock in a fixed tariff, the price you pay per unit of power will remain the same for the duration of the deal – usually one or two years.
Often the fixed daily standing fee – which covers administration costs – will also remain unchanged.
This does not mean that you can use as much energy as you want without paying more. But that means you’ll be charged the same rate no matter what happens to wholesale prices.
It always made sense to go for a fixed deal as they were usually much cheaper than the standard tariff protected by a price cap.
Fixed-rate tariffs largely disappeared after October 2021, when energy prices began to rise.
Energy suppliers started putting them back on the market in June, but they remained expensive until recently.
Where can I find the best deals?
There are currently around 22 fixed deals from ten providers, according to price comparison website Uswitch.
However, only two exceed Ofgem’s energy price cap and allow you to lock in at a lower price: Octopus Energy Loyal Octopus 12-month Fixed and Fixed Saver 7 from Utility Warehouse.
Octopus Energy’s fixed tariff costs the average household £1,818 – an annual saving of £16 over the current price cap. Available to existing customers only.
Utility Warehouse’s fixed deal costs an average of £1,775 a year, reducing a customer’s bills by £59 compared to the current energy price cap.
But there’s a catch — customers have to sign up for two other products if they want the deal.
You must switch at least two of your existing mobile, broadband or insurance services to Utility Warehouse to unlock the tariff.
Fixed-rate tariffs largely disappeared after October 2021, when energy prices began to rise. Energy suppliers started putting them back on the market in June
And which ones should I avoid?
As a general rule, you should avoid fixing your rate at anything higher than the current price cap, says Natalie Hitchins, of consumer champion Which?.
Ms Hitchins adds that consumers should think twice before locking in for more than a year. She says: “If you’re offered a deal, it’s really important to check the exit fees in case you want to leave that deal early.
“Unfortunately, prices are not projected to drop significantly in the near future, so there is no perfect time to correct if you see a good deal.”
The most expensive deal on the market is Ovo Energy’s one-year fixed and green tariff, which costs £2,084 a year for a household using a typical amount of energy.
This would add £250 to the average home’s energy bill. British Gas, E.ON Next and EDF Energy are currently offering deals that are above the existing price cap.
Could the bills go up again?
Although costs are falling, energy analyst Cornwall Insight expects the price cap to rise again early next year.
The average household energy bill is forecast to rise by £64 a year to £1,897 for dual fuel direct debit customers, it warns.
Prices are set to remain largely stable, falling to a low of £1,781 in July next year, according to Cornwall Insight.
Ofgem’s energy price cap is reviewed every three months.
Squeeze: Average household energy bill set to rise by £64 a year to £1,897 for dual fuel direct debit customers
Natalie Matti, energy expert at Uswitch, says that while fixed-rate tariffs may not offer huge savings, they could give you peace of mind. “Fixed tariffs can be priced similar to or slightly higher than standard variable tariffs. However, you have peace of mind that rates will not change for 12 months,” she says.
“Over the same period of time, the price of standard variable tariffs will change up to four times.”
She warns that the energy market is volatile, so it is difficult to predict whether fixed or variable tariffs will save more money.
Almost half of households want to switch to a fixed deal to get more certainty about their energy costs – that’s 14 million homes, according to Uswitch.
Joe Malinowski, founder of energy comparison service The Energy Shop.com, says customers should settle for a year if they’re risk-averse and can get a good deal.
He says: “If you’re a bit of a risk taker, then ultimately this is probably the thing to do. But be careful — don’t pay a premium and lock yourself into an absurdly high exit penalty.”
Most fixed deals have higher exit fees than variable rates. All currently available fixed tariffs have exit charges of at least £75 per fuel, with one EDF tariff charging customers £200 per fuel if they want to leave their contract.
You should look at the unit energy costs and fixed charges of the tariff you are considering to see if the deal is right for you. You can do this on comparison websites such as The Energy Shop.com, Go.Compare or Uswitch.
l.evans@dailymail.co.uk
Some links in this article may be affiliate links. If you click on them, we may earn a small commission. This helps us fund This Is Money and keep them free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.