Variable or Fixed

FairyDust214

my tariff with my current supplier runs out on he 23rd March and they have sent me a renewal of £171pm fixed for 2 years but I only pay £88pm on my current fixed rate with them. I am not sure if I should fix at 98% increase and see what happens after the 1st april or go with a variable that is with another company for £96pm and then change if I need to again! any advice would be great?

EssexHebridean

Impossible to tell you whether it's a good deal or not without knowing the details of the unit rate and standing charge.  It might be worth browsing through other replies to similar questions on here though, as well as the information on the main MSE site. That is being updated pretty frequently at the moment as more information becomes available.

Astria

The cap is released tomorrow at 11am, so might as well just wait for that now.

JP1977

Either way, bills are going up significantly - it's lose-lose for us consumers.

TLDR: Completely taking sums out of the equation (pun intended), the energy firms want to make money off you - I would imagine they're gambling that the fixed rate over 2 years will end up being higher than than the price cap on average over that period to make back what they're currently losing - and they're playing with a better hand than us in terms of industry knowledge. Maybe doing the opposite of what the money making business wants you to do is the best move?

So, let it roll onto the default tariff - this will be limited by the price cap and will likely be less expensive than (or similar to) the fixed term over the 2 years, including any predicted rises.

If the prices suddenly drop and competition between energy firms starts up again, then you can switch without penalty to a better rate.

The long version:

For me, my outlook looks like this (sorry for the back of envelope maths):

Currently paying £120 per month on a fixed term deal, which is lower than the current price cap of £145.
Come April, assuming a 50% increase in standard tariff: I will be moved to £217 per month.
I've been offered a 2 year fix at £244 per month, which is higher than the price cap.
These figures are of course linked to my average usage - yours may differ.

If I take their fixed offer, I will pay an extra 6x £27 per month until October (244 - 217 = £27) - This is £162 extra over the 6 months compared to the predicted price cap.

Come October, if the price cap rises again (who can say, but it seems likely) - It would have to rise by around a further 12% to reach £244 a month.

If it only rises to £244, then I'm still £162 UP (a relative term of course) for at least another 6 months (April 2023) vs if I'd gone with the fixed term originally. If it rises more than this, then the increase will start eating into that initial £162 saving.

Lets say it rises by a further 25% in October as oppose to 12% - then it will be £271.25 per month. It would take until the following April (just over a year from now) to have reached the cost of the fixed term - The price cap will be reviewed again at this point and maybe it goes up or maybe it goes down - crystal ball time, but that's the gamble. If it goes up, then the fixed deal would have been better, if it goes down, then you've come out with the best outcome you could have gotten.

In the meantime, if by some miracle the market stablises or drops and competition starts up you can bail on the default tariff without penalty.

So again, assuming the predicted 50% price cap rise this April, the price cap review in October is what will decide whether this is the right strategy - As long as it doesn't increase by more than 25% (a gamble), I will be no worse off until next April 2023.

If it just keeps going up and up and up by 50%, 50%, 50%, 50% every 6 months, then we're all a bit stuffed. At that point, it's extra jumpers, cold meals, unscrew light bulbs, cancel ironing and tumble drying, turn off the PlayStation and TV. I would expect some intervention by then though - maybe nationalisation of the power grid...(only half joking).

jonronnquist

I committed to a 12-month fixed-rate deal this morning with Eon that will kick when my existing fix (also 20% below the current Ofgem cap) expires at the end of this month. My new rate will be 34% above the current Ofgem cap. By not defaulting to Eon's variable rate for March I am obviously losing out a little, but come April I will be paying considerably less than I would be. And once October rolls around, I suspect my "savings" will be even higher. I committed to this now on the understanding that there is no guarantee my supplier (or anyone else's) will be offering fixed term rates at 16% below the Ofgem cap rise once it's announced tomorrow. I did find it a little odd that the 12-month fix I just agreed to has no early exit fees. The angel on my left shoulder says it's because they're confident nothing better will come along. The devil on my right thinks it's a ploy to get customers onto a fixed rate contract that will not qualify for whatever scheme the government might have in the works. But anything the government does is only going to reduce bills by £100-£200 over the year, so I'm not that bothered. I know what I'm going to pay for the next 12 months, I can bring it down a little by reducing my consumption a little, and that's good enough.   

Bod_1234

I'm in a similar boat, and unsure what to do for the best.

I'm currently with E.On. 

Fix Online Exclusive v60 Fixed term ends 25/02/202

I pay £99 a month for both gas and electric, 3 bed house, with 2 of us living here.

I have done most of the usual things to cut down energy bills (nest smart thermo, insulation, led bulbs and so on).

I can do nothing and go onto variable rate Next Flex £98.56 (if I understand correctly, this will jump after the price cap changes today, so this price is essentially totally meaningless).

Fix for a year at Next Online v9  £135.21/month

Fix for 2 years at Next 2 Year v17 £175.90/month

Switch to someone else (I really want to stay with one of the big companies, given the current state of the market, and I doubt there is much to gain by shopping around).

Is there anything to lose by waiting until the price cap announcement? Given the Tories are desperate to please right now (even if it's not the right thing to do), there might be something that takes the edge of being on the variable rate?

Will the fix deals change as a result of today's announcements? Should I be looking to pick one? Is there a cooling off period I can take advantage of?

emmajones1976

I just did a fix with Eon Next  on identical terms to the post above yours (Next Online v9), there is no guarantee it will still be there at 11am and you can exit it for free (on the offchance the cap doesnt go up 50%), so you may as well do it now

Bod_1234

As pointed out, there are no exit fees on the 1yr tarrif, so figure I don't really have anything to lose, and I am protecting myself somehat by things getting worse...

I have a month to cancel before the new tarif starts.

MWT

Bod_1234 said:

Is there anything to lose by waiting until the price cap announcement? Given the Tories are desperate to please right now (even if it's not the right thing to do), there might be something that takes the edge of being on the variable rate?

Will the fix deals change as a result of today's announcements? Should I be looking to pick one? Is there a cooling off period I can take advantage of?

The risk in waiting is that the fixed price deals you see now may not be there once the cap is announced.

This is why recent advice has been to take a fix if it is 'only' about 40% higher than the current capped variable tariff.

Bod_1234

Thanks all, it seems fixing before the announcement was the right thing to do.  I don't know if the "deals" are still there, but it does feel like the right thing to be on for now.

jonronnquist

Bod_1234 said:

Thanks all, it seems fixing before the announcement was the right thing to do.  I don't know if the "deals" are still there, but it does feel like the right thing to be on for now.

Had a little look around at the major suppliers now that the cap is out of the bag. None are offering to take customers on at the soon-to-be new cap rate and both 12 and 24 month fixes are all well above it. The only offer I get from Scottish Power, which was touted as having the best fixed deals only a couple of weeks ago, was 98% above the current (pre-April) Ofgem cap for a 12-month fix. So I think committing to a deal 11% below the looming cap increase was probably a good call. The only question now is, will I be kicking myself for not taking the 24-month plunge come Feb next year. Only time will tell.