Should you switch to a fixed energy tariff?

Gas and electricity bill rates plummeted on 1 April. But can you beat the cap by going for a fixed energy tariff?

Fixed tariffs largely disappeared two years ago. Huge spikes in wholesale costs made it difficult for suppliers to offer them. Instead, many households slipped onto their supplier’s standard variable tariff.

Given wholesale prices remain very volatile, the maximum sums charged on these default tariffs are being set by the Ofgem Energy Price Cap. The mechanism, which around 29 million British homes are sitting on, dropped 12.3% on Easter Monday (1 April). Energy bills are expected to continue to go down as 2024 progresses.

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As wholesale energy markets appear to be becoming increasingly stable, suppliers have tentatively started to bring back their fixed-rate deals. The only downside is they usually come with hefty exit fees and struggle to compete with the price cap.

But it remains the case that the best way to save on your energy bills is to cut your energy usage or invest in features that'll reduce your demand on the national grid. For example, by installing solar panels or a heat pump.

But Gareth Kloet, the energy spokesperson for GoCompare Energy, said opting for a fixed tariff could help protect you from future Ofgem cap hikes. He said: "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 fixed tariffs currently compare to what you’re paying on a default tariff covered by the energy price cap? And is it worth switching?

 How much does a fixed energy tariff cost?

Deals that are less than the energy price cap

The energy price cap fell 12.3% on 1 April. The regulator's limit governs how much you pay per unit (kilowatt hour, or kWh) and for daily standing charges. So, your final bill will depend on your usage.

The cap also varies depending on the size of your home, how many people you live with and what part of the UK you live in (price cap rates are set differently in each region).

Here's how the tariff options on the market today compare with the current price cap:

• E.on Next Next Pledge: Firstly, this tariff is not a fixed deal – it is variable. But it is likely to be the cheapest tariff option for most households at present. Open to new and existing customers, it tracks 3% below the price cap for a year. So, what you pay can still go up or down, but it is guaranteed to come in below the rate of the price cap. The tariff is available to dual fuel or electricity-only households. It comes with exit fees of £50 per fuel.
• Octopus Fixed March 2024 12-months: Coming in at 3% (£52 a year) under the price cap, this is the joint-best deal out there for switchers. It also comes with no exit fees. If you're already an Octopus customer, and have been one for more than eight months, you can access a cheaper deal that's 4% (£68) below the cap.
• Ovo Energy Fixed Loyalty 12-month fix: This deal is also 3% (£52) below the current price cap. It's available as dual-fuel or electricity-only and comes with a £150 exit fee.

There are other options that come in below the price cap rate. However, they usually come with conditions. For example, you may have to sign up to your supplier's boiler cover package, or another type of add-on.

Should you fix your energy tariff?

So far, there has been little incentive to switch suppliers as fixed deals have not been competitive with the Ofgem price cap for more than two years. And that’s if they’ve been available in the first place.

We don’t know exactly how prices will change over the course of 2024, so fixing now is a gamble. It could leave you paying more if the price cap falls significantly. Equally, if energy prices soar again, you could end up making a significant saving.

For those who value cost certainty above all else, it’s worth considering a fix that comes in 15% below the January price cap. That way, if energy bills fall as expected in July, you will be on a rate that means you won’t lose out significantly.

Energy expert Gary Caffell told MoneyWeek: “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.”

For the latest predictions, read will energy prices fall in 2024?

Ofgem energy supplier switching rules change

If you do opt to switch, it’s worth being aware of new rules that have been brought in by the regulator Ofgem. Previously, suppliers had to complete a switch within 15 working days. Going over this limit would entitle their new customer to compensation.

But, as of 1 April, suppliers have to complete customer switches within five working days (six if you enter into a contract after 5pm). Failure to do so will mean they have to pay affected customers compensation of £30.

If the supplier you’re moving to fails to switch you across in time, it’s worth complaining to them directly. Should they fail to pay you the compensation you’re due, you can escalate your complaint to the Energy Ombudsman, which can resolve the dispute.