Standard versus fixed variable energy tariffs: what is the difference?

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  • Standard variable and fixed rate energy tariffs have been a hot topic lately, with many suppliers removing fixed rate tariffs from the market amid the crisis. energy crisis, and customers with standard variable rates impacted by the new energy price cap.

    In the past, the solution to rising energy bills would have been to shop around and switch to a cheaper fixed rate. But the world of energy looks very different now. Traditionally more expensive standard variable rate rates are now more than 50% cheaper on average than the best fixed rate offer.

    Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “For the vast majority of the life of the cap, it simply limited how much energy companies could charge people on their most expensive tariff, from so you could save hundreds of pounds by switching to a better deal. However, over the past six months, as prices have skyrocketed, the market has changed drastically, so that currently no deal is cheaper than the price cap.

    What is the difference between a flat rate and an SVT?

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    An energy rate is simply how companies charge customers for the gas and electricity they use.

    You can get single fuel tariffs, where you pay for your gas and electric separately or dual fuel, where you pay together.

    The actual product that passes through your pipes and cables will be exactly the same no matter what tariff or supplier you choose.

    There are two main types of energy tariffs:

    Fixed price

    With this tariff, the cost per unit of energy consumed is fixed for the duration of the contract, generally 12 to 18 months. If the wholesale energy price goes up or down, it won’t affect what you pay. This makes budgeting easier, but you’ll miss out on savings if market prices drop. You can normally switch offers up to 49 days before the end of your contract without incurring an early exit penalty.

    Fixed rate offers tended to be cheaper than standard variable alternatives and were often used as a way to compete for new business.

    But due to spiraling energy costs, there are currently no cheap fixed rate offers.

    Standard Variable Rate Tariff (SVT)

    If you do nothing at the end of your flat rate, your provider will automatically place you on their standard variable rate plan. It is called “variable” because what you pay per unit of energy can change each month depending on the wholesale price of energy.

    Suppliers can only charge you the current energy price cap. Unlike a fixed rate agreement, you can leave an SVT at any time without incurring a penalty.

    How do I know what rate I am at?

    According to the comparison site Comparethemarket.com, 20% of energy consumers do not know what tariff they are applying to. More than half of those with fixed rate contracts do not know when their contract is due to expire.

    If you haven’t switched energy providers in the past two years – or ever – you’ll likely be on the standard variable rate tariff.

    You can easily check by looking up your billing information online or by calling your provider directly.

    Which should I choose?

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    Image credit: Douglas Gibb

    If you have a fixed-rate plan, you should continue to pay the same amount each month even when the energy cap increases in April, unless your provider goes bankrupt.

    If your contract is coming to an end or has ended and you are currently on the provider’s SVT, again it will probably be best for you to do nothing. The cheapest solution currently offered is on average 56% more expensive than the energy price cap.

    Coles adds: ‘If you haven’t already switched to paying by direct debit it’s worth doing as people who pay by cash or check are charged an extra £130 a year.’

    Although there is no harm in looking around and calculating whether it will be worth moving, at the end of your fixed rate contract you will be transferred to the SVT which is protected by the price cap . The other benefit is that you won’t be locked into this deal, so you’re free to move when prices eventually drop.

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