Guide to fixed and capped rate energy tariffs
- Fixed deals offer protection against rising energy prices - but you won't benefit if prices go down
- A capped deal can be a compromise, but prices may not be as competitive
- Check if caps apply to standing charges as well as unit costs
- Exit fees are likely to apply if you want to leave a deal early
If you're one of the many gas and electricity customers who get a shock every time the bill arrives, it might be time to introduce a little certainty to your bank account.
A fixed energy tariff could be just what you need to avoid nasty surprises and ensure you know how much is going out of your account each month.
Remember, though, that price changes work both ways, and fuel prices could go down. If this happens, you won't benefit from the savings.
A compromise option could be to opt for a capped-rate tariff.
What's a fixed energy tariff?
A fixed energy rate sets the amount you pay for your gas and electricity at a certain price for a defined amount of time.
This might typically be 18 months, or two years.
If energy prices go up or down during this period, your rate won't be affected.
Fixed rates often apply to the price of energy per unit, plus the standing charge (the amount you pay to the supplier for providing you with your energy).
Be careful, though, as some fixed rates only apply to the price per unit, meaning that if the standing charge goes up, your bill will go up, too.
What happens at the end of the fixed term?
If you do nothing at the end of the fixed term, chances are the energy firm will automatically switch you to a standard tariff, which tends to be the most expensive.
Make a note of when your fixed energy tariff is due to come to an end and, ahead of this date, research the best deal again.
Beware price hikes at the end of the fixed rate
It's possible that energy rates will have risen during the length of your fixed tariff and the jump could seem quite high.
But remind yourself that energy prices would have gone up anyway, and that you've saved money in the meantime.
What's a capped-rate energy tariff?
If you're worried about missing out should energy prices drop during your fixed-rate term, a compromise could be to opt for a capped rate tariff.
This means you can set a limit on the amount you're prepared to pay.
If energy rates rise, your bill will not go above this set amount, but if the cost of energy goes down, you'll benefit.
Capped rates are not usually as competitive as fixed rates, but they do offer flexibility whilst giving you peace of mind that your bills won't become unaffordable.
Exit fees from fixed and capped-rate deals
If you decide to switch gas or electricity supplier before the end of your fixed term contract, your supplier might charge you a fee for leaving early - this is usually called a cancellation or exit fee.
A good signal for when it's best to fix is when good deals and tariffs start disappearing from the market
Not all fixed rate tariffs come with an exit fee, however, so find out before you sign up whether yours has one or not.
When to take out a fixed energy deal
"Fixing can be a gamble, and something that can be a great idea when the market is volatile and prices are going up and down, but could result in you paying a premium if energy prices are stable," said energy expert Jeremy Cryer.
"A good signal for when it's best to fix is when good deals and tariffs start disappearing from the market.
"It's often as winter approaches that the wholesale price will rise as demand for gas and electricity increases, so again, that could be a good time to fix.
"When comparing tariffs and suppliers, don't limit your search to the biggest utility firms, as many smaller energy companies can offer competitive deals and often fare better when it comes to customer service, too.
"Remember, what you will be charged for your energy depends on various factors, such as where you live, precisely how much energy you use, how you pay your bills and more, so it's important to look for a tariff that is tailored to you - there's no such thing as an 'off-the-shelf' tariff that's best for everyone."
How do I buy a fixed- or capped-rate deal?
If you use Gocompare.com's energy comparison service, you'll be able to review prices and tariffs from all UK energy suppliers, including small firms.
After entering your details into our simple-to-use forms, you'll be presented with a price comparison table showing the names of suppliers, estimated annual savings, monthly and annual costs, payment and tariff type and key features.
These results can be filtered by tariff type, allowing you to choose to see just fixed-rate and capped-rate options.
You can also choose to see fixed and capped options against variable and/or green tariffs.
When you see an option you like you can click through for more detailed information on the chosen product and supplier, including energyhelpline.com's star rating of the supplier's service.
By Rebecca Lees