Fixed or variable electricity tariffs: which tariff is right for you?
Do you want to change supplier? Want to get the best deal for your energy, but not sure what kind of price is right for you? Look no further. Here we explain the differences between fixed and variable prices, detail the pros and cons of each type of price, and give you our recommendation on which price to choose.
In general, we recommend that you choose a fixed price package for both your electricity and your natural gas, because choosing a fixed rate will help you protect you from price fluctuation and unpredictability.
Not convinced? Read our full explanation below to find out why we recommend fixed rates over variable rates..
Variable rates: where the market price rules (usually)
Best for: customers able to manage fluctuations in their invoices
A variable rate changes from month to month, generally based on the market price of energy. This means that when energy prices are low, you benefit from cheaper energy prices. However, the flip side is that you will pay higher prices when energy prices go up.
Some say that in the long run you pay less on a variable rate, but keep in mind the great risk of price volatility. Since you never know by how much your electricity rate will change each month, it can be difficult to budget your energy bills when you are variable rate.
But wait, why did we say that variable prices “usually” change based on market prices? Well to a certain extent it depends on who your supplier is. If you buy power from your local utility, the rate you pay will also factor in their administration and overhead costs, which may also change from month to month (depending on how which they are regulated). High utility overhead costs can also mean that even if the price you pay changes based on the market price, it may still not be the cheapest rate.
As well, some other providers reserve the right to change variable rates at their own discretion. It can in fact sometimes be Well for the customer – for example, if prices increase considerably, the supplier may decide not to increase its tariffs by the same amount as the increase in the price of energy, in order to retain its customers. However, we also noticed a model negative opinions mainly from customers with variable tariffs, who often find bad surprises on their monthly bills.
Our advices If you are looking for a market based variable rate, beware indexed rates. These are variable rates that change according to a mathematical formula indexed to an energy index.
Fixed rates: a welcome respite from price volatility
Best for: customers who want take control of their energy prices
On the other hand, a fixed rate protects you from fluctuations in market prices and lock in the price of your electricity or natural gas for a certain period. This type of rate is only offered by other suppliers. Depending on where you live, providers in your area may offer fixed rate contracts for as short as three months, but most providers offer contracts for periods of six, 12, or 24 months.
There are a few main advantages of choosing fixed rates:
- Fixed rates give you price shock protectionbecause the price you pay for your electricity is not directly linked to market prices. This price predictability can be useful for monthly budgeting (but keep in mind that your monthly bill total will vary depending on how much electricity you use per month).
- In the long term (over a year or more) by paying a fixed price could save you money, as average prices have tended to increase in recent years.
However, fixed prices can sometimes be slightly more expensive than variable prices, which can reduce the amount of your savings. Also, keep in mind that you are also not guaranteed the same rate at the end of your term and it is time to renew, so choosing a flat rate can only delay the inevitable increases in the price of energy, instead of being able to avoid them altogether. Finally, pay attention to Termination Fee, which your alternative supplier may charge you if you change your mind and leave your contract early.
Differences between fixed and variable rates: summary
Still not sure? Check out our summary of the differences between fixed and variable rates to determine which price type is right for you.
|Fixed rates||Variable rates|
|Termination Fee ?||sometimes||No|
|Savings?||Fixed rates tend to be on average slightly higher than average variable rates. Nevertheless, they offer the security of a constant energy bill, with no risk of increase due to market volatility.||Variable rates can be slightly lower on average over an entire year compared to fixed rates, but they are very volatile and may end up being significantly higher more than a year. They are subject to market variations, and to terms and conditions from your supplier.|
|Green energy offered?||Free – with most providers you can choose a regular fixed rate, or a little more expensive green tariff Who go guarantee energy purchased from renewable sources.||Sometimes offered – but only with other suppliers|