Should you switch to a fixed energy tariff?

If you’re looking to save money on energy bills then you may be thinking about fixing your energy contract as we see the return of fixed tariffs and a forthcoming increase to the energy price cap.

Fixed energy tariffs largely disappeared over the past couple of years, as the chaos in the energy wholesale markets made it difficult for suppliers to offer them. Instead, many households slipped onto their supplier’s standard variable tariff, with the maximum sums charged on these tariffs protected by the energy price cap (and previously the Energy Price Guarantee).

However, the wholesale energy markets have now improved, and growing stability has resulted in some suppliers launching fixed energy tariffs once again, albeit they are often limited to existing customers rather than the market as a whole, or come with strings attached.

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The energy price cap will increase by 5% in January, taking the average annual dual-fuel bill from £1,834 to £1,928, meaning more customers will be tempted to fix their tariffs before the price rise takes effect.

Gareth Kloet, spokesperson for GoCompare Energy, commented: “While we can’t control the price that Ofgem sets for the price cap, there are options available for anyone who’s looking to protect themselves from further increases, for example, fixing your energy bills now means you effectively 'lock in' the price you pay for your gas and electricity for a set amount of time. 

"However, these deals will not be suitable for everyone and it’s important to look beyond the initial cost of fixing, make sure you’re aware of any additional fees, and ultimately, if the tariff is suitable for your lifestyle."

So how do these tariffs compare to what you pay on a variable deal covered by the energy price cap? And is it worth switching to a fixed energy tariff? 

 How much do new fixed-rate tariffs cost? 

Deals that are less than the energy price cap

While the energy price cap was reduced by 7% in October, it will increase by 5% on New Year's Day, taking the average annual dual-fuel bill from £1,834 to £1,928.

Here is how the tariffs on the market today compare with the current price cap. Bear in mind they will become more appealing when the price cap rises in January.  

• British Gas’s Fixed Jan 25 v1 costs 1% more than the current energy price cap, meaning it costs typical households around £1,852. It is available to both new and existing customers and comes with £150 dual fuel exit fees. 
• The Loyal Octopus 12m fixed tariff from Octopus Energy is only open to existing customers, and is currently priced around 2% higher than the energy price cap. That means typical households will pay around £1,870, while the tariff comes with dual-fuel exit fees. 
• Ovo Energy’s 1 year fixed loyalty 12 month fix is priced at the same level, and also only open to existing customers. There’s exit fees of £150 for dual fuel customers to consider too.  
• EDF Energy's Essentials 1yr Jan 25 is a 12-month fix for new and existing customers. It costs 3.5% more, meaning it costs about £1,898 a year for a typical household. You need to have a smart meter, or be willing to get one, and there's a £150 dual-fuel exit fee. 
• So Energy has the So Lily tariff, which also works out around 3.5% dearer than the energy price cap, meaning typical costs of around £1,898.It has £150 dual-fuel exit fees. 

Deals that are slightly more than the energy price cap

There are a few tariffs around that charge a little more than the current level of the energy price cap. They may be worth considering if you want to enjoy some certainty over what you pay each month, particularly with the price cap rising for the January - March period, and uncertainty over what could happen to gas and electricity bills from April onwards. 

• Eon Next's Next Fixed 12m v3 for new and existing customers costs 3% more a year and has a £150 exit fee. This means it costs the average household around £1,889 per year.
• EDF Energy's Essentials 1yr Jan 25 is a 12-month fix for new and existing customers. It costs 3.5% more, meaning it costs about £1,898 a year for a typical household. You need to have a smart meter, or be willing to get one, and there's a £150 dual-fuel exit fee.
• Sainsbury’s Energy Fix and Reward 12 V3 is a 12-month fixed tariff open to new and existing customers. It costs around 4% more per year, meaning the typical household will pay about £1,907, and has £150 exit fees. 

Should you fix your energy tariff?

So far, there has been little incentive to switch suppliers as there have been no energy deals to switch to. And although they are returning, many are still only available to existing customers.

If you are thinking about switching, then keep in mind you may not be making a significant saving but if you like certainty, then switching can give you that.

Analysis from the comparison site uSwitch found that 33% of consumers would prefer to have certainty and would switch to a fixed deal for it. Around 70% say they would like the option to move to a fixed tariff.

But whether you fix is ultimately a gamble. Fixing can protect you from future price rises, but if prices fall next year - and they are forecast to in April - there is a risk you will end up paying more by locking yourself into a fixed energy tariff. 

Gary Caffell, editor-in-chief of our sister website Look After My Bills, said: “The decision to switch to a fixed deal or stay on the price cap comes down to an individual's attitude to risk.

“It's important people understand that the energy price cap changes every three months, so you need to look at what is expected to happen over the next year before locking yourself into a new fixed deal, as they come with hefty exit fees.”

The current price cap of £1,834 will rise to £1,928 in January. The analyst Cornwall Insight predicts that it will then drop down to £1,816 in April and £1,793 in July, and finally rise slightly to £1,833 in October.

For more predictions, read Will energy prices fall in 2024?