Is it bad for this forum to recommend variable DD payments

Mstty

It has been worrying to see so many people say phone up and ask to switch to variable payments and here is my reasoning and I will use my example.

(For the purpose of this I have excluded the £150 council tax rebate and £200 loan as it's already complicated enough)

We have electricity only 7100 kWh/year DD set to £177.70 per month on Standard Variable Rate

I know my exact usage and between 1st Apr and end of Sept we will use 2000 kWh and will be in credit by £485. 

Now on the surface I can see why people would like to bank that £485 in the summer months but I think we all know what is happening from October 2022 it's another 30% increase for the start of the cold months.

So let's assume I asked for that £485 back and the prices rise 30% on 1st October 2022.

Again because I know my exact usage this is how it would go paying variable from October 2022 with the above predictions of 30% increase in energy prices.

Oct £266.50

Nov £323.70

Dec £361.40

Jan £399.11

Feb £343.20

Mar £304.20

Total £1998.11

These would be massive bills if I listened to many on here and paid my usage on a variable DD rate just to save some money in the summer to be slapped down with unmanageable payments in the winter and it would be a very SAD winter.

If I carried on with the £177.70 all year ever with the price rises the deficit would be £446.91.

There seem to be very knowledgeable people on here but I don't think pointing people to variable direct debits is great advise. In fact they would be going with calculate direct debits on their usage for the year and putting money aside for the next price rise.

To combat our shortfall calculated above we are putting £40 into premium bonds every month 

GunJack

Agreed, if you know your useage then I don't get the move to monthly variable DD - I always go on 12-monthly regular DDs and set the level to remain in credit year-round.

Not only does it smooth payments out for the year and so help budgeting, but a big one which a lot of people overlook is that having that credit means in a SoLR situation (or even just a regular change of supplier) it gives a buffer during the period of being moved to a new supplier and the inevitable delay in getting the new accounts set up and running properly. 

Marvel1

£485 in credit, company goes bust, new supplier, how long do you wait to be refunded or whatever happens?

The_Fat_Controller

Variable DD works fine for those who have sufficient income to pay for their energy monthly in arrears.

It also means never having to argue the toss with how DD amounts are set and never lending the supplier a penny.

@Mstty if the cap rises by Martin Lewis's latest prediction of 50% in October then your company may not let you stick with a monthly DD that only covers just over half of your winter usage.

Every household has different cashflow, variable DD works fine for me but maybe not for you.

Chrysalis

I dont think its bad no, if I suggest to someone to use variable direct debit I only usually suggest it when they have made a comment which indicates their problem is related to fixed direct debit.

Fixed direct debit in itself is flawed, and it serves two purposes, it gives the companies cashflow via payments ahead of time and credit balances (brilliant idea, they borrow money at 0% rates), and it helps people who cannot handle variable living costs.  Also not everyone has such big differences between winter and summer bills. 

Then you also have people who treat electricity as unmetered which encourages sloppy use, not sending readings etc. since higher usage doesnt immediately translate to an appropriate DD. People have become fixated on their DD amount.  Fixed DD does not protect you from paying for higher usage, it just masks it slowly over time.

Now even more so our Martin has noticed himself some of the companies are deliberately setting fixed DD's too high, check the 2 min mark in this video, he has raised it with parliament.

https://www.youtube.com/watch?v=iYkdA9xaK6g

I myself personally had over £1000 in credit for 2 months last year, and I first noticed how high it was when checking after the October rises were announced (£930 in October).

After asking around i discovered I wasnt alone.  There is now stories of people been given estimated annual bill's then a direct debit set much higher than that annual bill,  again Martin has contacted parliament about this.  Also an employee of one of the companies reported he was told off for advertising variable direct debits to customers and now some customers of british gas reporting they have been told the variable DD system doesnt even exist.

There is nothing wrong with educating people of their options, but of course they dont have to exercise that option and you are free to tell them why you think its better for them to have their money sitting in their energy suppliers bank account.

Finally the massive standing charges in the cap, are mostly down to millions (maybe even billions) of credit balances going !!!!!! when the companies went bust, which we are all now paying for.

What I will say however as a final note, I think one company I know off has said they wont honour the DD discount on variable DD's, if you find thats the case then variable isnt a good idea as you pay more in the long run.  I think if too many ask for variable, they may all follow suit.

GingerTim

I can only speak of my own circumstances, where a variable direct debit works great.

I know that my electricity usage is going to be in the range of £31-£37 each month, and my electricity-only tariff is fixed until August 2024. EDF wanted to increase the budget DD to £75 - despite me trying to explain that I don't use electricity for heating or hot water. There was zero point in building up a credit balance, and a variable DD was the perfect solution.

Obviously this is not going to work for everyone and individual circumstances should be taken into account, and just trying to get the lowest DD possible may well be unwise.

MWT

Mstty said:

There seem to be very knowledgeable people on here but I don't think pointing people to variable direct debits is great advise. In fact they would be going with calculate direct debits on their usage for the year and putting money aside for the next price rise.

The advice tends to be given where people are concerned about the level their DD is being raised to by their supplier and always with the proviso that they need to be able to tolerate the much higher bills in winter.

A level DD payment is generally better for people with a tight budget, but only if they are prepared to actively monitor the state of their account and their usage from month to month, failure to do that leads to unpleasant surprises.

Sea_Shell

Well, to me, it is abundantly clear that many posters (both here and in other places), over recent weeks, have very little understanding of the whole thing, and I agree that there are some that just want the lowest DD possible NOW, without much (or any) thought to what's coming.

I think we're going to see (and read about) lots of sad "compo faces" towards the end of the year. 

If it works for you, and you UNDERSTAND the implications and CAN budget for them, then fine, but if you don't and you also don't foresee any increase in your monthly budget come next winter, it could be a very bad decision. 

GingerTim

Sea_Shell said:

Well, to me, it is abundantly clear that many posters (both here and in other places), over recent weeks, have very little understanding of the whole thing, and I agree that there are some that just want the lowest DD possible NOW, without much (or any) thought to what's coming.

I think we're going to see (and read about) lots of sad "compo faces" towards the end of the year. 

If it works for you, and you UNDERSTAND the implications and CAN budget for them, then fine, but if you don't and you also don't foresee any increase in your monthly budget come next winter, it could be a very bad decision. 

Quite - someone who's chosen a variable direct debit now and is on the SVT May get a pretty unpleasant shock at the size of, say, the January 2023 DD.

MattMattMattUK

Mstty said:

There seem to be very knowledgeable people on here but I don't think pointing people to variable direct debits is great advise. In fact they would be going with calculate direct debits on their usage for the year and putting money aside for the next price rise.

There is nothing wrong with variable direct debits, you pay what you use on a monthly basis, rather than a fixed amount that may or may not cover your usage, leading to either a credit or future adjustment. I am not on a variable direct debit but it would not matter if I did, because I would manage my budget to take account of lower summer use and higher winter use, as well as the October increase. No one will be in a worse financial position because of variable direct debits, they may be in a worse financial position due to failure to adequately budget. 

markin

It only gets suggested when the company is playing silly games, like using 3 winter months in a new home, using huge yearly estimates, or simply being greedy.