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10 Jun 2022

Is it time to fix an energy deal?

With energy prices set to rise further in October, find out how to decide whether a fixed deal is right for you
Couple with laptop

Most UK households are currently on price-capped variable energy tariffs, after months of stagnation in the energy market which has left variable tariffs the cheapest option. But is now the best time to move to a fixed tariff?

While fixed tariffs have traditionally been cheaper than variable ones, for almost all households a variable tariff will currently be cheaper than a fixed deal. However, because variable tariffs are set to rise again in October, this could be a good time to fix. You'll pay more from now until October, but the hope is that you'll have protected yourself against the higher October cap when that comes in. 

It's a delicate sum, and will be different for each household depending on your budget, your energy use, and how much you value price security. Money Saving Expert's Martin Lewis said earlier this week that now may be a good time to seriously considering fixing. 

Two thirds of Which? members we surveyed who moved from a variable (price capped) to a fixed tariff in the three months to May 2022 said their fix was more expensive. 

Energy bills reached £1,971 a year for a typical household in April this year. Jonathan Brearley, the chief executive of energy regulator Ofgem, has warned that the next price increase, which will come into effect in October, will push this average bill ‘in the region of £2,800’ owing to current wholesale pricing. So if you’re looking for stability ahead of that, you could consider signing up for a fixed deal now. 

Energy suppliers offer some fixed tariffs exclusively to their existing customers. Others will be available for anyone to switch to. Here’s how to understand if the fixed tariffs you’ve seen advertised by your current energy supplier and other providers would work for you, and even save you money on your bills in the long run. 

Ease the squeeze on your household bills with our latest cost of living advice and tips 

What is a fixed energy tariff?

An energy tariff is a combination of rates for gas and electricity usage per kilowatt/hour, and usually a fixed daily standing charge, that when combined make up the amount you pay your energy provider. The two most common types are fixed-rate and variable tariffs. 

A fixed-rate tariff sets the price you'll pay for your energy for a certain amount of time - typically a year or two. Prices on variable tariffs shift up or down according to what's going on with the energy market, and are affected by the energy price cap.

Fixed deals offer guaranteed standing charges and unit rates, usually until a defined end date. You can end these contracts whenever you wish to, but some have exit fees if you leave before your contract is up. Exit fees could be around £30 per fuel source – unless you switch 42-49 days before your contract ends, when they don’t apply. 

Fixed-rate tariffs give the predictability of knowing that you'll be paying the same amount per unit of energy you use, as well as standing charges, for a set period. The tariff end date for a fixed deal is the date that your contract will come to an end. 

Remember it’s your unit rate that’s fixed rather than your total bill amount. So if you’re on a fixed tariff, you can still decrease how much you spend on your energy payments by reducing how much you use.

How to work out if a fixed deal is right for you

Ensure you shop around if you’re looking for a fixed deal, rather than necessarily go with what your provider suggests. If your supplier does offer fixed deals to existing customers that aren’t on the open market, they may be worth considering, but make sure you compare them with deals on the open market as well.

To work out which option will be best for you, you should find out:

  • your household’s energy usage in kWh - look at your past activity on your current energy account to see how many kWh you typically use in a year or each month;
  • your current tariff;
  • the rates of the new fixed tariff.

Decide how much you expect to use in the months from now until 1 October, and how much this will cost you on your current variable tariff and on the proposed fix. Then estimate how much energy you expect to use after October, and how much this will cost you assuming your variable tariff increases again at that point. Then calculate how much it will cost if you fix.

The latest predictions from energy consultancy firm Cornwall Insight, published on 1 June 2022, suggest that the next price cap in October could bring a further 46% increase to energy bills for those on variable tariffs, taking the average household's annual bill from £1,971 to £2,879. This would then increase a small amount again in January, with a 1% increase. From next April, it predicts that prices will drop slightly again - by around 10% of that top figure. 

So when you're doing your calculations about whether a fixed deal will save you money in the long run, think about how much you will be spending during this time period if you stay on a variable tariff. You may find that the fixed tariff comes out better, when you take into account the expected changes.

You can also factor in the £400 credit on your energy bills that will come to all UK households following the government's announcement of its updated cost of living support package.

While out-of-contract rates (also known as a variable or default tariffs) are currently among the cheapest options, getting a fixed deal gives you the security of a set price you pay for each unit of energy you use. But that reassurance is something you’ll pay a premium for in the short term. It's also worth bearing in mind that these predictions are not set in stone. With the current volatility in the energy market, the proposed figures could well change in the coming months.

Read more: our guide to how to switch energy supplier

If you are worried about not being about not being able to afford the higher costs, head to our guide to what help is available if you're struggling to pay your energy bills.

If you're keen to compare energy deals across the market, you can use Which? Switch. If you're comparing these prices to your variable tariff, it's still worth doing your own calculations as to how much that will be once the next set of predicted price cap increases come in.