While they might not be anyone’s favourite conversation topic – or maybe they are, no judgment – energy tariffs are a big part of our lives, and with energy prices in flux it’s becoming more important than ever to make sure you’re on the right one.
When it comes to domestic energy, there are two main tariff types to consider – fixed and variable – and both have their pros and cons. Read on for our breakdown of each, and find out which tariff is best for you.
What is a fixed energy tariff?
A fixed energy tariff is pretty much exactly what it sounds like – a tariff where the unit rate and standing charge are locked in for a set period, usually a year or two.
There’s one obvious benefit to a fixed energy tariff, and that’s price stability. The amount you pay for energy will not change for the duration of your contract period, no matter what happens to inflation, the market or wholesale energy prices.
You’ll be protected from unexpected price rises and will be able to budget more effectively. Of course, a fixed tariff only guarantees the unit price, not the amount you’ll actually pay every month, so you’ll still have to manage your energy usage to avoid large bills.
There’s also the obvious downside that goes along with fixing unit prices – if market prices drop, you’ll miss out on the savings.
What is a variable energy tariff?
A variable tariff, on the other hand, changes with current market conditions. The unit price you’re paying will go up or down based on a number of factors, including wholesale energy costs and supplier changes.
This type of tariff – such as the Standard Variable Tariff (SVT), for example – is often the default when switching to a new supplier, or when a fixed price deal ends.
With a variable tariff you can expect to take full advantage of any energy price drops. They also tend to be much more flexible and don’t usually incur any exit fees if you want to switch suppliers.
Of course, on the flipside your bills may be much less predictable and you will be subject to market volatility – prices going up and down can be a bit of a double-edged sword.
Fixed vs variable at a glance
| Feature | Fixed Tariff | Variable Tariff |
| Price Stability | ✅ Yes | ❌ No |
| Exit Fees | ✅ Often | ❌ Rarely |
| Potential for savings (if prices fall) | ❌ No | ✅ Yes |
| Flexibility | ❌ Locked in | ✅ Can switch any time |
Which tariff is right for you?
Both fixed and variable tariffs have their share of benefits and drawbacks, and which type is best for you depends entirely on your individual situation. Here are a few things to think about when making your decision:
A fixed tariff might suit you if…
- You want more budget certainty
- You want more control over your expenditure
- Energy prices are rising
A variable tariff might suit you if…
- You plan to switch suppliers
- You don’t want to commit to a lengthy contract
- You expect energy prices to drop
How to pick the right tariff
Comparing energy suppliers can be a bit overwhelming, so here are our top tips on choosing a supplier and tariff that suits your needs:
- Always make sure to compare unit rates and standing charges – not just the tariff type.
- Check for exit fees.
- Make a note of how long the fixed term lasts, and make sure it’ll work for your situation.
- Consider your energy usage habits.
