Save Money Now With A Fixed Tariff!

Many people could save money immediately with a fixed tariff, and millions more can expect to save in the near future.

All news is bad news today. In addition to EDF's and British Gas' price hikes in July, we now have E.ON with prices up 26% for gas and 16% for electricity, which comes into effect immediately.*

In further news, an important pipeline from Norway has been closed due to a leak. Many newspapers have reported that the price our energy suppliers pay for gas reached a record high as a result, up 14%. This will likely mean more rises for us.

But maybe some news is good news

However, energy suppliers are increasingly using fixed tariffs to compete for the customers who are willing to tie themselves in for at least a year. Today, ScottishPower has actually reduced prices to its fixed tariff a little, and E.ON has launched its own fixed tariff.

I ran several searches using The Fool's gas and electricity comparison tool this morning and found that, whilst you would have fared even better if you'd taken a fixed deal when we recommended it earlier this year, the current deals still compare ok. With prices likely to continue to rise, fixes seem like a wise move if you're concerned about future bills.

Are you an old or new customer?

The best deals are always offered to new customers, and it's rare that existing customers can switch to them as well. Here's how it works:

Let's say that you are on the Standard Tariff and paying £1,000 per year. Let's also say your neighbour uses the same amount of energy with the same provider and switched to a cheaper tariff, the Web Discounter v3, so he pays £800 per year. Then prices go up 15%. You are now paying £1,150 and he is paying £920. You pay £230 more than him.

However, your supplier simultaneously releases the Web Discounter v4 for new customers only. If you and your neighbour could get it, it would cost you both just £820.

This is normal practice, which means that other suppliers will also be launching these new discounted tariffs constantly, too. So it may be that you can't switch to your existing suppliers' new tariff, but there will be others to choose from.

The best deals are always offered to new customers, which is why it makes sense to switch once a year, whether prices are rising or falling.

Back to fixed deals. How do they compare?

I can't give you precise figures on how fixed tariffs compare because it depends on your energy usage and where you live, but I've run through several typical scenarios which will give you a good indication.

If you were to choose now between a fixed tariff and the cheapest variable Internet tariff for new customers, you would probably pay around 26% less for the latter. With the pipeline issues and future expected oil-price increases, it seems to me that there probably isn't much in it.

However, if you compare your existing Internet tariff to a one-year fixed deal it might cost you just 17% extra to switch, perhaps. This rise could easily be dwarfed by your provider's next price hike, making the switch more attractive for you. (Of course, you could always switch to the cheapest variable tariff, too.)

If you're on a standard tariff, I've found in several of my searches that a one-year fixed deal might actually be cheaper than your current deal! Plus, in one instance, a three-year fix is actually the same price: British Gas is offering the same price for a fix till late 2011 that it charges customers on its variable standard tariff. What's more, this offer is open to existing customers for a change!

Of the fixed deals, I find British Gas' the most interesting, but watch out, because in my tests it's been around 50% more expensive than the cheapest variable Internet tariff. This means that, to make it worthwhile, prices will actually have to rapidly rise beyond 50%. Failing a rapid rise, they'll have to rise dramatically over 50% in the next three years to make the fix worthwhile. This is because anyone switching to the fix now will immediately be paying more than those on the cheapest variable deals. That increase to your costs in the beginning will offset the gains when (and if) prices go over 50%.

You can compare prices through our service, although if you are already a ScottishPower customer you will need to contact them directly. You must also contact British Gas and EDF directly about their fixes, although they are shown on our tables for comparison purposes.

* After Neil wrote this article Scottish and Southern also announced big price hikes. Its gas prices are up 29% while electricity is up 19%.

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