NEW! Our Hero’s Journey tool can help you with your next step towards financial freedom - click here to try now.
Advertiser Disclosure

Which energy tariff is best: fixed rate or variable rate?

Which energy tariff is best: fixed rate or variable rate?
Image source: Getty Images

Switching supplier is one way to save money on energy bills. But what about switching tariff? To help you work out which energy tariff is best for you, here’s what to think about when it comes to fixed-rate and variable rate energy plans.

What is an energy tariff?

A tariff simply describes how you pay your energy supplier for the gas and electricity you use. 

Broadly speaking, energy tariffs fall into two main groups: fixed-rate tariffs and variable-rate tariffs. Within each group, you’ll find all sorts of other payment plans. These could be based on energy source (for example, green energy tariff) or the way you manage your account (for example an online or paperless tariff). 

The price of your energy includes various different costs, such as:

  • The wholesale cost of your energy
  • Network costs
  • Operating costs of your supplier
  • Government schemes that support environmental and social responsibilities like the warm home discount and green taxes

If you want to find out more about the percentage split between the different costs, head to Ofgem’s breakdown of an electricity bill.

Plot your path towards financial freedom with our Hero’s Journey tool!

MyWalletHero is here to help you learn about taking control of your money, whether that’s paying off debt, working towards a short-term money goal, or investing for your future.

This tool can help you understand the next steps on your journey – simply choose a goal that best describes your current interests to get started.

What is a fixed-rate energy tariff?

This means you pay a fixed amount for each unit of gas or electricity you use for an agreed length of time. On your bills, this unit is measured in kilowatt-hours (kWh).

Most fixed-rate tariffs run for 12 months, but two-year fixed-rate plans are also available. 

Remember, it’s only the unit cost that stays the same. Your energy bills can still go up or down depending on the total amount of energy you use. 

Fixed-rate tariff pros

  • Usually one of the cheapest tariffs available.
  • If your energy use is consistent, your bills will be predictable, which can help you stick to a budget.
  • If the wholesale price of gas or electricity increases, you’ll be protected from price rises.  

Fixed-rate tariff cons

  • You must commit to a contract for at least 12 months.
  • You’ll have to pay exit fees if you want to break your contract. 
  • If the wholesale price of gas or electricity falls, you won’t benefit from any price reduction. 

Could you be rewarded for your everyday spending?

Rewards credit cards include schemes that reward you simply for using your credit card. When you spend money on a rewards card you could earn loyalty points, in-store vouchers airmiles, and more. MyWalletHero makes it easy for you to find a card that matches your spending habits so you can get the most value from your rewards.

What is a variable-rate energy tariff?

The unit cost of your gas or electricity can change according to the wholesale price. 

If you’ve just moved home or never agreed a contract with your supplier, it’s likely that you are on a variable tariff known as a default or standard tariff. 

Variable-rate tariff pros

  • You could save money on bills if the cost of energy falls.
  • Tariffs are flexible and you aren’t tied to a contract.
  • No exit fees if you want to change to a different tariff.

Variable-rate tariff cons

  • Budgeting can be difficult as prices can rise and fall.
  • Typically more expensive compared to fixed-rate tariffs.
  • Can be time-consuming to compare the cheapest variable tariffs and switch accordingly.  

Which is the best energy tariff?

Like most things, it really depends on what’s important to you. 

If you want predictable energy bills that allow you to balance a household budget, then a fixed-rate tariff could be the most sensible option. 

Be sure to make the most of your switching window when your contract nears its end. In most cases, your supplier will send you a letter or email four weeks before the contracted end date. This gives you ample time to search for a new fixed-rate deal. 

On the other hand, if you have a higher tolerance for risk and don’t need to stick to such a rigid budget, a variable-rate tariff could offer greater flexibility. 

For more ways to save money on energy, take a look at these five apps to boost energy efficiency in your home. 

Are you making these 3 common investing mistakes?

These all-too-common investing errors can cause you to miss out on the long-term wealth-building power that shares can hold….

To help you side-step these pitfalls, and move forward on your path to wealth-building, we’ve created a free report, “The 3 Worst Mistakes New Investors Make”.

Just enter you best email below for instant access to your free copy.

By checking this box and submitting your email address, you agree to MyWalletHero sending you emails with money tips, along with details of products and services that we think might interest you. You can unsubscribe from future emails at any time. You also consent to us processing your personal data in line with our privacy policy, and our cookie statement. For more information, including how we collect, store, and handle personal data, please read our Privacy Statement and Terms & Conditions.

Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.