Get cash for switching your energy tariff

Some energy tariffs offer cashback. How do these deals compare and what tricks should you beware of?

Usually the cheapest products don't have such gimmicks as cashback – they're just plain cheap. Today, I'm looking at cashback deals in gas and electricity contracts. Are they of real value or gimmicky, or even dodgy?

npower's 'discount'

Most providers who offer gas and electricity discounts will credit the discount monthly or quarterly. Not npower.

Take an average user in the Farnborough, Hants area. Npower's Sign On-Line version 19 is currently one of the cheapest tariffs, largely because of its discounts. However, this discount of £105 (£52.50 for gas, £42 for electricity plus £10.50 for dual fuel) is added after 12 months and you only get it if you stay with npower for 12 months.

In other words, npower might call it a discount, but it's actually cashback. This cashback is included in the savings estimate in comparison tools, so if you switch inside a year your deal will be worse than you expected. What's more, there are cancellation fees of £40 on top (£20 for electricity and £20 for gas) if you cancel before 30 September 2011, making a total shortfall on your expectations of £145. Cancellation fees shouldn't be applied if you cancel due to a home move.

If npower increases the price of your tariff shortly after you switch, you'll be faced with a difficult decision: take the hit, or pay £40 plus lose the part of your £105 'discount' that you've already earned.

Last time  I checked there were just a few companies that applied their discounts in the same (i.e. bad) way as npower. These suppliers are first:utility, Utilita, and Scottish & Southern Energy (which includes the Atlantic brand, and Southern Electric, Scottish Hydro Electric, Swalec and Airtricity).

ScottishPower's introductory cashback

The energy suppliers and most energy comparison sites (including energyhelpline, which powers our energy comparison tool) abide by a code of conduct. Currently, under the code, introductory sign-up offers are supposed to be excluded from the savings results. This is good if you don't switch very often, but it's not as accurate if you like switching every year. Thankfully, these sorts of offers are rare, so it makes it easier for us to note them separately. (Our comparison tool also puts introductory cashback in the results in bold red, to make it clear.)

At present, ScottishPower has an introductory cashback offer. It will pay an additional £70 cashback (£35 per fuel) to customers signing up to its Online Energy Saver 11 – it's cheapest tariff in many regions – before midnight on Thursday 16 September. You can get a further £30 cashback if you sign up over the phone (call 0800 634 5191 to access this deal through the lovemoney.com service). This cashback is paid when your energy supply goes live with ScottishPower, and will make it the cheapest tariff overall for many customers at today's prices.

However, again with this tariff you'll be tied in with cancellation fees, this time £50 (£20 for gas and £30 for electricity) all the way to 31 October 2011. That's more than one year,although that is, alas, becoming the norm.

If the tariff goes up in price, you may find that £75 swiftly be eaten up again, or be forced to switch again and pay the cancellation fee. (I don't understand why regulator OFGEM allows suppliers to charge cancellation fees on tariffs that suppliers can increase in price at a whim. This doesn't happen with most financial products.)

EDF and Sainsbury's 90-day cashback

EDF Energy's Online Saver version 7 and Sainsbury's' Online Saver version 7 also offer introductory cashback. They offer £50 whether you go for dual fuel or electricity only. (They don't offer gas only). It'll pay the cashback to you within 90 days. This is in addition to the estimated savings you'll see in comparison results.

The thing is, the tie-in period for these tariffs are even longer than the other two I've mentioned. You'll have to pay a £60 fee if you cancel before the end of 2011, so that's more than 15 months, including one-and-a-half winters.

There are a few other tariffs I could mention with cashback, but I think for most people they're not going to be all that high on the comparison tables, so you won't be tempted anyway.

Of those mentioned, I think ScottishPower's tariff might be a reasonable choice. However, for many, table-topping tariffs such as E.ON's SaveOnline 3 (Dual Fuel) which has no introductory cashback, and cancellation fees of just £30 if you switch before 1 November 2011. Alternatively, look for fixed deals, some of which I think are still fairly priced.

This article referred to tariffs that are still available to new customers only.

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