Martin Lewis offers advice on fixed and variable tariffs
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Many households across the country are debating on whether to take out a default or variable tariff when it comes to their energy bills. When it comes to energy bills, a fixed price tariff means that a household’s unit price for gas and electricity won’t change for the duration of the plan. In comparison, a variable energy tariff means a household’s energy costs can change during the plan.
On This Morning earlier today, Martin Lewis answered questions from viewers about the wider cost of living crisis, but specifically on how the energy bill rise is affecting them.
One woman named Nicola called the show to share the dilemma she is in choosing either a fixed or variable rate tariff.
Nicola explained: “I’m currently with British Gas paying on a fixed tariff which is due to come to an end.
“The options I’ve been given are either a fixed rate of £309 or a variable rate tariff.”
As part of his take on her situation, Martin Lewis warned that energy bills are expected to increase even further in October as the price cap is likely to go up even further.
Mr Lewis explained: “The variable rate will be on the price cap and the price cap is the standard basis we need to look at.
“That’s £240 a month. The other one you said was around £300 to £310 so that’s about an uplift of around 20 to 23 percent.
“That’s right in the difficult spot, if I’m honest. Here is what is likely to happen. The current prediction is the price cap is going to rise by around 30 percent in October.
“So, the variable rate will jump from about 30 percent in October which will mean, if that prediction is right and we are only half way through the assessment period so that’s not set in stone, from October you will be paying more than what they are offering you on the fixed.”
The financial journalist went on to ask the caller how long their fixed rate contract would be, which she replied would be a year.
He added: “What you have is, the variable rate is cheaper now. The fixed rate is cheaper from October.
“The question is does the amount that you save from October outweigh the extra you are going to pay until October.
“Doing the maths based on the prediction, it is virtually equal.
“In your particular case, as the fixed rate is only 25 percent more than the variable rate, if you want certainty go for the fixed, if you’re prepared to ride it out go for the variable.”
At the beginning of this month, Ofgem raised the energy price cap by 54 percent in response to external pressures on the wholesale gas and electricity market.
As a result of this, households on default tariffs are set to experience a £693 increase to their average annual energy bill, from £1,277 to £1,971 per year.
On top of this, prepayment customers are expected to see a rise of £708 this year which would see bills jump from £1,309 to £2,017.
Analysis by Cornwall Insights has forecast that the energy price cap will rise by 32 percent in October 2022.
Outside of the pressure placed on household gas and electricity bills, inflation recently soared to a 30-year high of seven percent.
Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip
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