Direct Debits, Fixed vs Variable

Flintman

Contracts with utility companies almost invariably require us to to pay by Direct Debit (DD). Almost without exception, they push fixed monthly payments at us by plugging the benefit of avoiding difficulties with large winter bills. However, they invariably suggest higher monthly payments than are necessary and as a result, have built up significant amounts of cash in their accounts. In effect, we lend them a lot of money that they use for their own benefit. On top of this, it can be a bit of a nightmare to get them to reduce monthly payments if you think you are paying too much.

An alternative is to request a variable monthly DD. A few years ago, I paid my E.on Next bills this way and it is the only way that Fuse Energy accept. In fact, after I left British Gas to go to Fuse, I was contacted by them to ask why I was leaving. I told them that one of the reasons was to get away from Fixed Direct Debits. Interesingly, they said that they would also accept variable monthly payments.

To get the benefit of a fixed DD but have better control over your money, you need to open easy access savings accounts for each utility and arrange standing orders to put what you were paying via fixed DD (or a little more if you can) into them. Chase and Monzo are 2 banks that make this very easy, but many others are probably equally helpful. So, instead of building up balances in utility accounts, you build them up in yours. You can obviously change the standing order any time you wish and if some emergency occurs, you can always borrow from a utility account. In short you have total control of your money, you still pay a fixed amount each month and as a bonus, you get some interest as well. Now is a good time to do this so that you will have built up a balance before the big winter bills come along.

The same idea can be also be used with bulk LPG suppliers who also try to push fixed DD’s, except that instead of paying via a variable, DD, you pay via your credit card, backed up by a dedicated savings account.

QrizB

Bear in mind that not every company offers variable DD. At least one, OTOH, only offers variable DD.

Chappers27

That sounds like a great idea, but can't customers log into their accounts, see the credit balance and request a repayment?

Swipe

https://forums.moneysavingexpert.com/discussion/comment/81883120#Comment_81883120

Only for the supplier to send you an email about your payment amount changing a couple of months later. I have had a problem with my EAC record being set at 10k more than I use for the last 18 months that no one seems able to correct, so I have no choice but to go Variable DD and definitely prefer it. The two most expensive months coincide with the two council tax payment holiday months.

pseudodox

Variable DD works perfectly for me. The higher winter bills do not clash with some of my other large annual costs, especially motor & insurance. And I have on one occasion had to "borrow" my savings pot for emergency plumbing that would not have waited for a refund.

Variable does not suit everyone and everyone should have the choice to pay in a way that suits them. I submit readings start of every month, get the bill within 24 hours & just check it, put the DD date in my diary & get on with more interesting things than constantly monitoring whether I am paying too much/too little & wasting time negotiating changes & refunds.

Scot_39

https://forums.moneysavingexpert.com/discussion/6655216/direct-debits-fixed-vs-variable

A lot of effort for very little gain in reality. Just how much interest say do you expect to make in the next year - for going to all that effort - on say your energy account ?

The average CCB - for notionaly "annualised" DD payments - yes Ofgem do keep statistics - when checked last years data - was around £230 for Q3 2024 - and falling - by around £30.

Even if that was annual average credit - stick that in a top account at say 4% - you might get £10 - less than £1 per month - one month's saving vs standard credit - on today's Ofgem caps.

Yes my credit builds up in summer - but it's around £40 now - with Feb and to a lesser extent normally Mar "winter" bills" still to come - if not for the expected change in Apr - my DD would likely have been increased by £10pm to cover the expected short fall.

And for many that £1 per month - a price well worth paying - for someone else doing all of the effort of managing the "savings" account - and far less than millions have sitting in current accounts or high st bank savings accounts earning less than say 1% interest. In past probably more like 0 / 0.1%.

And again for those without large savings or good discipline to perform all that money shifting - worth it to avoid winter bill budgeting issues. For those on low fixed incomes - like those on small pensions or benefits - for whom say finding that extra £100, £200 etc for a winter bill over the average - would really push their finances.

Personally I suspect the days of variable DD at DD rates are limited - unless those accounts too - are forced into permanent credit - rather than on average - with payments running a month behind consumption.

People who pay on similar timescales - roughly a month behind - on monthly standard credit terms (increasingly common at some big suppliers - not the older say quarterly) still AFAIK have to pay the full standard credit premium - of £136 pa - £11.33 pm.

https://www.ofgem.gov.uk/sites/default/files/2025-11/Summary-of-changes-to-energy-price-cap-1-January-to-31-March-2026.pdf

And if you really want to save on a standard capped variable tariff - without fixing or one of the more complex TOU or dynamic tariffs like Agile - whilst not giving suppliers control of your money - why not use your smart meter in prepay - and pay at cap TDCV - £47 less per year (£1711 vs £1758) .

As some forumites have posted have done so - since the prices lowered - after media pressure during crisis.

At 4% savings rate - you'd have to have an average credit balance of £47/0.04 = £1175 - more than some folks total annual bill.

Its not normally like the old days when had to trudge down to the corner shop and top up a physical key - and more importantly - you often no longer pay a big price premium - its the cheapest average cap level.

Other users now pay a £10+vat levelisation allowance - all on DD - to reduce the prepay costs by £56.

£47 - far more than likely to save by your method - for many in with good comms areas from meter to supplier - from comments here - often effortlessly topped up via internet or phone banking in almost real time.

At one stage on older meters - some allowed friendly credit - overnight, over weekends, over bank holidays etc - when top ups were awkward - others say £10 emergency credit can be activated. On smart prepay ??

squirrelpie

I suspect some suppliers are more interested in the balance of the customer accounts in relation to their own need to keep a certain amount of capital per customer in reserve, than they are in any interest they may earn on the balance.

gpman

@Scot_39

I was with you until you got to this part:

"And if you really want to save - whilst not giving suppliers control of your money - why not use your smart meter in prepay - and pay at cap TDCV - £47 less per year (£1711 vs £1758) ."

Whilst pre-pay is cheaper on the price cap compared to DD on the price cap as you say, you can still save considerably more by opting for a fixed rate tariff paid by DD. The options for those with prepayment meters are significantly less. (or should that be fewer?)

Many people with a credit meter can probably make a significant saving just by consulting a comparison site (ensuring you are looking at the whole of market view) and choosing a lower price supplier & tariff.

pseudodox

My gain is not significant in terms of any interest I might gain on the money being in MY savings account. What I do gain in spades is the satisfaction of being in total control of MY money. And the satisfaction of managing MY life. I don't give a whatnot how others want to manage theirs as long as they are as content as me & leave me to get on with it.

Scot_39

https://forums.moneysavingexpert.com/discussion/comment/81883768#Comment_81883768

Yes sorry I was only really considering standard tariffs. I'll edit it

The payment method DD I guess is probably baked into most if not all fixes (I used to fix parents account on DD - I cannot fix my own - there is no fixed E10 at my supplier - only variable)

But there are things like cap tracker that don't save much more than prepay.

And had just come from reading some of the fix or not ahead of April stuff.