Two/Three Year Fixes

Legacy_user

With energy prices on the rise, we are seeing the return of 2 and 3 year fixes in comparison tables. It took me a few seconds to cotton on to the fact that when sites such as MSE CEC show an increase of £150 over my current deal, this refers only to the additional cost over the next 12 months.

Clearly, for a 3 year fix, the cost in years 2 and 3 will not increase above the amount paid in year one; however, over the 3 year period the additional cost will be £450 more than 3 years on my present deal.

The judgement that needs to be made is whether the cost of energy will rise to justify taking out a long fix now. Bear in mind that the wholesale cost of electricity (which is rising at a faster rate than gas) accounts for only 36% of every bill: it follows that if the wholesale cost of electricity doubled then my bill would only increase by about a third.

I would therefore be more inclined to look at a 2 year rather than 3 year fix.(hedging my bets)

icharus

Hengus wrote: »

With energy prices on the rise, we are seeing the return of 2 and 3 year fixes in comparison tables. It took me a few seconds to cotton on to the fact that when sites such as MSE CEC show an increase of £150 over my current deal, this refers only to the additional cost over the next 12 months.

Clearly, for a 3 year fix, the cost in years 2 and 3 will not increase above the amount paid in year one; however, over the 3 year period the additional cost will be £450 more than 3 years on my present deal.

The judgement that needs to be made is whether the cost of energy will rise to justify taking out a long fix now. Bear in mind that the wholesale cost of electricity (which is rising at a faster rate than gas) accounts for only 36% of every bill: it follows that if the wholesale cost of electricity doubled then my bill would only increase by about a third.

I would therefore be more inclined to look at a 2 year rather than 3 year fix.(hedging my bets)

This was my quandary. I almost fixed for the First Utility 3 year deal because I simply multiplied my costs in year 1, times 3, and included a Quidco cash back. A stupid error! The 3 year fix per se was quite appealing, but not when you take in the times 3 increased cost versus, a good 1 year fix and hopefully a not too rapid increase in the succeeding 2 years.

Brexit and falling pound implications also came into consideration, but as you pointed out Hengus the increases surely wouldn't be that huge, or quite a few pips would be squeaking!

System

icharus wrote: »

Brexit and falling pound implications also came into consideration, but as you pointed out Hengus the increases surely wouldn't be that huge, or quite a few pips would be squeaking!

God help us all if the £ falls another 20% against the US$. That said, I am old enough to remember inflation as high as 15% - 24% in the 70s.