Do you constantly find yourself asking the question of whether or not variable energy is better than fixed energy? Or do you wish to know the differences between the two? If yes then you, my friend, have come to the right article.
Here, we will help you better differentiate the two so that you can decide for yourself. So without further ado, let’s dive right into it.
Understanding fixed-rate energy
Many people out there do not know that with a “fixed price” energy tariff, your gas and electricity unit prices will not fluctuate throughout the contract.
During the plan, your energy cost may change if it is variable, but in the case of fixed power, it will stay the same. Your rates won’t change if you have a fixed pricing plan and your supplier announces a price increase.
Fixed-rate contracts provide you with assurance and are frequently among the most affordable options. However, if you want to end the fixed deal, you will typically be required to pay fees and be locked in for at least a year.
Many people do not want to indulge in such things as waiting for one year for a contract to end can seem like a long time.
It must be mentioned that although the contract is usually made for one year, it may exceed more depending on factors which we will get into later on. If you want to exit before the contract ends, you would typically have to pay around £30 to £60.
Pros of fixed rate
A huge proportion of individuals choose the fixed-rate energy option as it has numerous advantages to it. The most apparent benefit of having fixed cheap electricity rates is being able to simply budget your monthly expenses because the price is fixed for a whole year.
You can count the amount you need to save at the end of every month for gas and electricity, helping you save money and have clarity over your monthly expenses.
The market is very competitive, and there is a wide range of options because the plurality of energy suppliers offers fixed-rate plans. This implies that you should be able to select the plan with the longest fix, the one with the lowest monthly expenditure, or one without an early termination fee.
The cheapest business energy comparison plan you can choose from is probably going to be a fixed-rate plan, but this isn’t always the case as sometimes the demand increases to a high level, and so many people are forced to choose a plan that may be towards the expensive end of the line.
Cons of fixed rate
Now that we have discussed the major advantages of a fixed rate, it is worth mentioning the drawbacks that are associated with it as well so that you can easily compare. First of all, certain utilities can impose a hefty penalty if you terminate your contract early.
A fixed-rate energy plan is a legally enforceable contract; therefore, there may be steep penalties for ending the arrangement before its term has run its course. Although many people find this to be a discomfort, there is not much that they can do or say to change the laws.
If you are thinking about a fixed-rate plan, make sure you are aware of its cancellation restrictions so you know what to anticipate if you need to opt-out early. This is something that could help you a long way if you are choosing to stick around with a fixed-rate energy plan.
Moreover, another con is that your prices will not vary throughout your contract for up to three years if you choose a fixed-rate option.
Even if market prices decline, you will still be required to pay the same rate per kWh as stated in the original contract. This may occur in situations where food prices are rising, and the economy is failing in a country.
Variable energy plan
With a variable-rate energy plan, your monthly payment for your electricity or natural gas supply may change. This monthly fee will be largely determined by the prices your energy provider pays on the market at the time to get the electricity and natural gas it supplies to you.
Contrary to fixed-rate plans, variable-rate plans are flexible because you are not bound by a contract; as a result, you won’t be penalized if you find a better deal and decide to switch plans or energy providers.
Now you might be asking yourself the question, why do energy prices fluctuate? Well, there are several reasons the prices may fluctuate.
Many people do not know that Market forces determine how much energy costs. Since natural gas is sold as a commodity, the price to buy it might vary from month to month. Just like that, the price of energy also fluctuates.
Numerous variables can affect pricing, including the market, weather, demand, cost of fuel used to produce energy, and the distribution network.
As a result, even if you as the consumer are spared daily price fluctuations, your variable-rate plan still, at some point, requires you to make adjustments for changes each month.
Pros of the variable energy plan
Now you may be wondering; what are some of the advantages of a variable energy plan, and how do they differ from a fixed-rate plan? The reason why you should know the advantages is that knowing the pros of variable vs. fixed energy plans makes picking the best one for your needs simpler. Some of the major benefits available to you with a variable-rate plan include the following;
• More power bill savings when market prices are low. This means that you are able to save money when the prices decrease. In the case of a fixed rate, you would have to pay the same price each month till the contract ends, regardless of how market price.
• Another benefit of choosing a variable energy plan is that you have more freedom to change energy suppliers. If you feel that the variable energy plan you are currently on is not fit for you, you can easily change without having to pay a fee to end any contract.
Conclusion
The option of choosing a variable or fixed rate depends upon your income level and how comfortable you are spending your money on bills. Both carry sets of advantages and disadvantages. Hence you should compare the two and choose the one you are most comfortable with.