When paying an exit fee to escape your energy tariff is a good idea

Variable energy tariffs may have fallen in price, but that doesn't mean dropping your fixed rate is always a good idea. In fact, for a majority of people staying put is probably the best option.

Recent energy price drops have fuelled talk of paying to get out of fixed tariffs in order of snap up newly lowered deals.

However the best fixed tariffs from the middle of 2011 – when many households were locking in prices ahead of rate rises – are still cheaper, when exit fees are factored in, than most of the deals currently on offer.

It’s only those who failed to shop around, or were pushed into an expensive tariff by their energy provider who should really consider paying their way out.

Price drops

January brought some rare good news for households as all the main energy providers dropped their standard prices by around 5% each.

Energy companies, along with many in the mainstream media, jumped on these price cuts, advising households to consider paying their way out of fixed deals to take advantage of newly lowered variable tariffs. npower seemingly extended an olive branch to households by suspending all exit fees for two months for those wishing to move from a fixed tariff to one of the provider’s cheaper deals.

Falling wholesale costs were also cited as a potential catalyst to further price drops. Some media outlets even predicted that average energy prices could fall back to 2008 levels – spelling disaster for anyone locked into a comparatively pricey fix.

But looking back at the tariffs available when many were locking in their rates last year does not reinforce this switching mentality.

Direct marketing

July to October 2011 was a prime time for households to fix their energy tariff. Providers were in the midst of announcing price rises and the MD of British Gas, Phil Bentley, was predicting that energy prices would “only go one way”.

Several fixed tariffs were also present in best buy energy charts. Data from energyhelpline.com places EDF’s Fixed S@ver -which locked customers in until September 2012 - at the top of the charts with an average price of £1,009, followed by an npower fix at £1,014. The tariffs had £40 and £50 exit fees respectively.

However, the current cheapest tariffs are more expensive than both of these deals. First:utility has the best buy with its iSave v10 variable tariff at an average price of £1,027. The npower Go Fix 11 (locked in until May 2013) follows with an average price of £1,033.

Likewise, the best npower fixed tariffs from July 2011 – Go Fix 6 at an average price of £1,014 and Price Protector at £1,054 – are both cheaper than the provider’s current top deals. This renders npower’s fee-free switching option completely pointless in most cases.

Mark Todd, co-founder of energyhelpline.com said: “If you chose a fixed tariff wisely [last year] then you probably won’t save much by switching now.

“Typically people will be on expensive fixes after providers have marketed tariffs to them saying, ‘We’re sorry to put your prices up, but if you pay a premium then you can guarantee your rate for the next few years.’ It’s when people have been directly sold to that they are usually on an expensive fix.”

When to switch

Mr Todd’s account tallies with advice included in British Gas’ July 2011 price rise announcement: “Customers who want peace of mind can fix their prices for the next two winters, until 31 March 2013, as British Gas is now offering a new fixed-price tariff, Price Promise March 2013.”

However the Price Promise 2013 tariff was actually one of the worst deals on the market in July 2011 with an average cost of £1,284 and steep exit fee of £50 per fuel.

Dual fuel customers currently on this British Gas rate could potentially save over £150 even after paying the early exit penalty by switching to the first:utility iSave v10 online tariff, with its average cost of £1,027.

But is now really the best time to get on a variable tariff?

The future

Despite all six major energy providers dropping prices by 5%, many are still predicting rate rises later in the year.

“The general momentum for energy prices will continue to be upwards due to scarcity of resources and the impact of green policies,” said Mr Todd.

If energy prices do rise, those on variable rates – such as the best buy first:utility tariff detailed above – will see their bills increase. Those locked into fixed tariffs will remain protected.

So the real dilemma is not so much "Should I pay to exit a fixed deal in favour of a variable one?" as it is "How long should I fix my rate for now?"

Fixed tariffs: then and now

Source: Energyhelpline.com

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