Loyalty to your energy supplier doesn’t pay – switch

New measures will make energy suppliers22 switch you to a cheaper deal when your fixed-rate tariff ends.

Regularly switching energy supplier can shave hundreds of pounds off your energy bills. Many of us are still sitting on expensive standard rates because we’ve forgotten, don’t know how, or can’t be bothered to switch provider when our introductory deal has ended.

If you don’t switch energy supplier regularly you end up on your provider’s standard tariff. These can leave you paying “over the odds by as much as £324 for gas and electricity”, Hollie Borland reported in The Sun last year. Known as the “loyalty penalty”, that’s the difference between the price of a provider’s standard rate and their cheapest deal.

The government has tried to tackle the loyalty penalty problem in the past by bringing in a cap on how much energy firms could charge per kWH of electricity and gas on their standard variable tariffs. At present it stands at £1,042 for a customer with typical consumption. The cap “helps households save a few hundred pounds on their energy bills every year”, says Emma Munbodh in the Daily Mirror. But it still leaves people paying more if they don’t move to a different provider.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Now the government is intensifying its campaign against the loyalty penalty by having energy customers automatically switched to a cheaper tariff at the end of their contract. The new scheme is “opt in”, so you will only be switched automatically if you agree to it when you sign up to your energy deal. If you do agree, you will be moved to a cheaper deal when your contract ends. However, it won’t necessarily be the cheapest deal on the market, so you should still shop around at that stage.

If you are set to switch energy provider make sure your current supplier doesn’t owe you money first. Auto-switching service Switchcraft has found that energy firms are using a number of tricks to hoard customers’ cash. “They include doubling direct debits, even when accounts are in the black, and not refunding customers who are in credit when they switch supplier,” says Laura Shannon in The Mail on Sunday.

“With some suppliers understandably behind on their bills with the pandemic, I wouldn’t be surprised if more suppliers quietly bump up direct-debit payment demands,” says Andrew Long, chief executive of Switchcraft in The Mail on Sunday. “Households should check that their direct-debit payment matches their energy usage. They should also insist their supplier refunds any credit balances straight away.” If your supplier won’t refund your credit balance, take your complaint to Ofgem. The energy watchdog has won refunds totalling £38m for customers this year. When you switch supplier your energy firm is required by Ofgem to refund any credit balance to you within ten days of your final bill.

Finally, beware of letting a large balance accumulate with your energy provider, or letting tempting interest rates win your custom. Some firms, including Igloo and Ovo, pay up to 5% interest on positive balances. But “in most cases, a lower tariff and lesser monthly payments will prove more rewarding than any interest earned on a credit balance,” says Shannon.


Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings and credit cards to pensions, property and pet insurance. 

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping among many other titles both online and offline.