Choosing between a fixed or variable energy tariff can significantly impact your household bills. With energy prices fluctuating, it’s essential to understand how these tariffs work, their advantages and disadvantages, and which is best suited to your financial situation. In this guide, we’ll break down the key differences, benefits, and risks to help you make an informed decision.
What is a Fixed Energy Tariff?
A fixed energy tariff means your unit rates and standing charges remain the same for the duration of your contract, typically 12, 24, or 36 months. Regardless of market fluctuations, you pay the agreed rate per unit of gas and electricity for the entire contract period.
Key Features of a Fixed Tariff:
Your energy rates stay the same for the contract length.
Contracts typically last 1–3 years.
Protects against price rises but does not benefit from price drops.
Some suppliers charge an exit fee if you switch before the term ends.
More predictable monthly energy bills.
What is a Variable Energy Tariff?
A variable energy tariff, also known as a standard variable tariff (SVT), means your energy rates can change in response to market conditions. If wholesale energy prices rise, your bill may increase, but if they drop, you could pay less.
Key Features of a Variable Tariff:
Prices fluctuate based on wholesale energy costs and supplier adjustments.
No fixed contract – you can usually switch at any time without exit fees.
Can be impacted by government price caps.
Offers potential savings when prices fall but carries the risk of higher bills when prices rise.
Typically the default tariff when a fixed tariff ends.
How Market Trends Affect Fixed and Variable Tariffs
Energy prices in the UK are influenced by several factors, including global fuel prices, government regulations, and seasonal demand. Here’s how these affect both tariff types:
Rising Energy Prices: Consumers on a fixed tariff are protected, while those on variable tariffs see immediate increases.
Falling Energy Prices: Variable tariff customers benefit as their rates drop, while fixed-rate customers remain locked in at their agreed rate.
Government Interventions: Price caps can limit increases on variable tariffs but do not impact fixed tariffs.
Pros and Cons of Fixed vs. Variable Energy Tariffs
Fixed Energy Tariffs
Protection from price increases for the contract period.
Easier to budget with predictable payments.
Ideal for those who prefer stability in their energy bills.
No benefit if energy prices drop.
Some fixed contracts have early exit fees.
Less flexibility to switch suppliers mid-contract.
Variable Energy Tariffs
Can benefit from price reductions if the energy market falls.
More flexibility – no long-term commitment or exit fees.
Good for those who are comfortable with price fluctuations. Bills can increase if energy prices rise.
Harder to budget due to unpredictable costs.
Subject to government price cap changes.
How to Choose Between a Fixed or Variable Tariff
Deciding between a fixed or variable energy tariff depends on your financial situation, risk tolerance, and energy usage.
Choose a Fixed Tariff If:
You want price stability and predictable bills.
You prefer long-term security against price hikes.
You’re comfortable committing to a contract (often with exit fees).
You use a lot of energy and want protection against potential cost increases.
Choose a Variable Tariff If:
You’re willing to take risks in exchange for potential savings.
You want flexibility to switch suppliers without penalties.
You expect energy prices to decrease in the near future.
You are comfortable with fluctuations in your monthly bills.
Alternatives to Fixed and Variable Tariffs
Besides standard fixed and variable tariffs, some suppliers offer hybrid or specialist tariffs:
Green Energy Tariffs: Tied to renewable energy sources, offering eco-friendly benefits.
Time-of-Use Tariffs: Prices change based on peak and off-peak energy usage.
Tracker Tariffs: These follow wholesale prices, offering variable rates without the standard variable tariff risks.
FAQs About Fixed and Variable Energy Tariffs
1. What Happens When a Fixed Tariff Ends?
Once your fixed-term contract ends, you’ll automatically be moved onto your supplier’s standard variable tariff (SVT) unless you switch to a new deal. SVTs are often more expensive, so it’s a good idea to compare options before your contract expires.
2. Can I Switch from a Fixed Tariff to a Variable One?
Yes, but some fixed tariffs come with exit fees if you switch before your contract ends. Check your supplier’s terms before making a move.
3. Are Fixed Tariffs Always Cheaper?
Not necessarily. Fixed tariffs offer price stability but may be more expensive than variable tariffs when energy prices are falling. It’s important to compare rates before locking into a fixed contract.
4. Do Variable Tariffs Have a Price Cap?
Yes, variable tariffs are subject to the Ofgem energy price cap, which limits how much suppliers can charge per unit of energy. However, this cap changes every three months, meaning your rates can still fluctuate.
5. Can I Get Out of a Fixed Tariff Early?
Most fixed energy contracts come with early exit fees, which can range from £20 to over £100 per fuel. However, some suppliers allow penalty-free switching if your contract is nearing its end.
6. Which Tariff is Best for First-Time Homeowners?
If you’re a first-time homeowner, a fixed tariff may be preferable for stability, especially if you’re managing new expenses. However, if you’re comfortable monitoring energy prices, a variable tariff could provide potential savings.
Final Thoughts
Both fixed and variable energy tariffs have their advantages and drawbacks. A fixed tariff provides security against rising costs, while a variable tariff offers flexibility and potential savings if prices drop. The best choice depends on your financial situation, energy consumption, and how much risk you’re willing to take.
Before making a decision, compare deals from different energy providers and consider how long you’re comfortable committing to a tariff. If you’re unsure, using an energy comparison site can help you find the best rates available.
Next Steps
If you’re considering switching energy tariffs, it’s a good idea to:
Check your current supplier’s rates and terms.
Use an energy comparison site to find the best deals.
Consider whether locking in a rate now or waiting for potential market changes makes sense for you.
Taking a proactive approach to your energy tariff choice can help you save money and avoid unexpected costs in the long run.
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