Fixed-price energy deals are the most popular among savvy customers who switch. But if you pick a long-term fix, you’ll probably be hundreds of pounds worse off, exclusive Which? research reveals.
We analysed more than 2,200 gas and electricity tariffs between January 2016 and June 2018 to find out how much customers who picked long-term energy deals paid.
The cheapest one-year fixed deal always cost less than the cheapest three-year fix – by £217, on average.
So if you fixed your gas and electricity prices for three years, rather than switching to the cheapest tariff every year, you could have overpaid by £753.
Read on to find out how longer fixed energy deals compare with other types of offer. Or compare gas and electricity prices now, using our independent comparison service Which? Switch.
What is a fixed-price energy deal?
Fixed tariffs that last for one year are the most common, but you can buy tariffs of other lengths – stretching from 18 months up to four years.
A fixed tariff guarantees that, for the length of the deal, the rate you pay for each unit of energy you use stays the same.
By contrast, a variable tariff can change price when an energy supplier raises or lowers its prices. Companies have to give at least 30 days’ warning when they do this, though.
Some variable tariffs are also referred to as ‘standard’ or ’default’ tariffs. This means they are the tariff you’ll automatically be put onto if your fixed deal came to an end and you don’t switch. You’ll probably be on one already if you haven’t switched in a while.
Pricey three-year fixed energy tariffs
The number of three-year deals has increased in recent years. Throughout 2016, just four firms sold one of this type of deals (and not all at the same time). Earlier this year, if you’d wanted a three-year fixed deal, you’d have had a choice of between four and six in any week.
Fixing your energy prices for several years can make sense if you want a predictable price in the long-term. But you’ll be paying a premium for peace of mind.
Even if you were careful to choose the cheapest three-year fixed deal, it would still have cost you £221 more over three years than picking the cheapest one-year fix.
On average, a three-year fix would have cost you £574 extra, based on our analysis. At worst, if you chose the priciest long-term deal, you’d be £753 worse-off.
How do two-year fixed energy deals compare?
If you’d rather not have the hassle of switching every year, our analysis has found that you could still save money by switching once in three years, compared with a three-year deal.
- £2,383 – one-year fixed deals only (cheapest deals, average cost for three years)
- £2,673 – one-year fixed deal plus a two-year fixed deal (cheapest deals, average cost for three years)
- £2,980 – three-year fixed deal (cheapest deals average cost)
Choose the cheapest one-year fixed deal followed by the cheapest two-year fixed deal, and you would have spent £290 more on average, compared with three one-year deals. But you would still have saved £307 versus the cheapest three-year tariff.
Fixed and variable energy deals
Standard variable tariffs, or ‘out of contract’ tariffs, are often held up as the ‘rip-off’ energy deals to avoid.
But we found that three-year fixes were so pricey that you’d have paid £200 more than if you’d been on the cheapest variable tariff across energy firms.
To find out which tariff is the cheapest for you, you need to check on Which? Switch to see which tariff is the best for the amount of energy you use.
See our expert advice on how to switch energy firm.
Energy prices are rising – should I fix?
If you’re tempted by a long fixed deal, compare prices with deals of other lengths before signing up. If it isn’t good value to begin with, and other tariffs are still cheaper when you’re locked in, you’ll be out of pocket.
You’ll lose out even further if the other deals fall in price.
Many energy firms have announced price rises in the past few months – these only affect their variable tariffs. The prices of existing fixed deals don’t change.
For your long-term fix to be financially worthwhile, you would have needed prices to increase substantially – by £573 in three years, on average, in our analysis.
We can’t predict how energy prices will change during the length of your energy deal, so make sure you’re happy with your cost before you’re locked in long-term.
How to find the best energy deal for you
Price is the most important thing people consider when choosing a new energy company, according to our survey of 8,761 people*. But customer service is ranked second in importance.
Check the best and worst energy companies to find out what current customers think of them, then follow our simple tips to get a better energy deal:
- Find out how much gas and electricity you use per year in kilowatt hours (kWh) from your online account or annual statement. Use these figures (not averages provided by a comparison website) for the most accurate quotes.
- Know the name of your tariff(s) so you can compare new prices with them (not an average) to get the most accurate savings estimate. Find the names on your latest bill or online account.
- Compare gas and electricity prices. Price comparison sites no longer have to show every tariff available, so make sure you opt to see the whole market – not just the deals that the site can switch you to directly. Sometimes you’ll need to contact an energy supplier directly to switch to it.
- Decide if you want a fixed or variable tariff. One-year fixed tariffs are usually the most competitively priced, while longer fixed tariffs may leave you out of pocket. Variable deals aren’t necessarily expensive, but prices can increase at 30 days’ notice.
- Consider exit fees if you’re likely to move home, or want to switch before your fixed deal ends. Exit fees can be £60 per fuel; but some suppliers charge nothing. Sometimes they’re worth paying if a new tariff will save you more.
- Paying by monthly direct debit can be cheaper, as can choosing to manage your account online. Paper bills will often add to the cost of your tariff.
Already on the best energy deal for you? Try our 10 energy money-saving tips.
Which? energy pricing research
Energy pricing data is from Energylinx, based on a medium dual-fuel user (using Ofgem averages of 12,000kWh gas and 3,100kWh electricity per year), paying by monthly direct debit, with paperless bills. Prices are annual, averaged across GB regions, and rounded to the nearest whole pound.
*Survey: 8,761 GB energy customers in September 2017.