Cut your energy bills by 20%

This new tariff could cut your energy costs by 20%, but you'd better hurry if you want to avoid a hefty winter bill.

British Gas' Websaver version 5 has received a lot of attention this month. It promises to charge a minimum 6% less than British Gas' standard tariff, just like Websaver versions 2 to 4.

However, in the few tests I've run today, Websaver 5 is around the top of the table by charging about 20% less than British Gas' standard tariff.

This is great news but it shows that, with around half a dozen other tariffs being just as cheap, the 6% guarantee doesn't mean a great deal.

Make way, British Gas!

BG has several challengers at the top.

Ovo Energy's New Energy version 2 costs just 50p more than Websaver 5 for many people and for others it actually cheaper, matching the cheapest tariff. (The cheapest tariff depends on your area and usage, which is why you need a personalised quote using this tool.)

Ovo Energy doesn't have a guarantee, even one as pathetic as 6% off, but unlike the British Gas Websaver 5, it has no tie-ins either, so you can leave this tariff any time without penalty. Those better terms make it worth at least an extra 50 pence.

npower has once again launched a new table-topping tariff. You can now buy Sign Online version 17, which is a couple of percentage points cheaper than BG's Websaver 5. Average savings quotes for switchers are around £200, so this tariff might save you about an extra £20 on top. For most people, this will be the cheapest tariff at the moment.

There are a couple of good fixed tariffs. E.ON's Fix Online version 4 comes up just 0.5 to four  percentage points more expensive than the cheapest tariffs in many areas. It's fixed till 1 February 2011. Atlantic Electric and Gas's Online Fixed Price tariff is just seven percentage points more than the cheapest and it's fixed till 31 August 2011. Both are much cheaper than British Gas' standard tariff.

These two tariffs will take you through almost two winters, so they should suit people who are prepared to pay a small premium in return for fixing their costs. For those who don't need the security and peace of mind that fixed-tariffs bring, you should remember that prices could inch further down if you stay more flexible and choose a variable-tariff.

A price direction U-turn

Which takes me to my next point. I must admit that despite the many warning signs of higher prices, it's now looking less likely that these rises will happen in the next few months. Prices have also continued to drip a small fraction lower every few weeks since early summer, which was not what I expected.

The global downturn is the main factor keeping a lid on rises for now. According to Florian Ritzmann of Xelector (which powers our gas and electricity tool), the most likely cause of a spike happening any time soon will be Russia switching off the gas again because of its beef with Ukraine.

So I was wrong about summer prices. The first good news though is that it's a pleasant surprise with prices coming down! Prices may even drip a little lower next year. The second piece of good news is that this latest forecast doesn't change my guidance. I try not to base most of my guidance on things that can be affected by political disputes, let alone oil prices!

Energy guidance for 2009: a history

Back in February, one major price-reduction announcement followed another, and all financial and energy websites - other than this one - were telling you to sit tight and wait before switching till they'd all finished. However, I explained to you why that advice was flawed, as it was not based on all the factors.

By May, these commentators had changed their advice to 'Switch now!' yet, if you'd switched even earlier when I said you should, you would have saved a lot more money. You can read why here.

But if you haven't switched yet, now really is a good time. This is because switching as it begins to get colder is the best time to switch. That's why I changed my switching advice from 'neutral' during the summer to 'switch' a month or so ago. If you've not done it yet, you should think about it, because it's during these cold months that you spend a lot more on your energy. You want to be on the cheapest tariff during this period.

That's why, even though it looks possible that prices will keep falling (very slowly), most of you shouldn't keep waiting to switch, or you could end up waiting all the way till spring, when your heating is switched off again! It takes up to six weeks to switch providers, so there's still time to cut some of those winter bills if you switch to a cheaper tariff today.

A word of warning however for those of you who do want to switch: watch out for exit penalties and loss of discounts that might affect you when you leave your existing contract. This will apply mostly to people who switched less than a year ago and those of you in fixed or capped deals.

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