With customers’ bills going up, prices on the rise, and the savings rate at an all-time low, it’s no surprise that people are asking, “Should I go for a fixed or variable rate electricity plan?” While both have benefits and challenges, it’s up to you to decide if fixed or variable is the best fit for your bill. The only way you’ll know whether it’s a good idea to choose a fixed rate or a variable rate plan is to know precisely what you’re getting. So, with that in mind, you can read below to find out more about fixed and variable rate plans.

The difference between fixed and Standard Variable Rate tariffs

The difference between fixed and standard variable tariffs is that fixed tariffs have a set rate for their service, while standard variable tariffs can change over time. If you haven’t moved energy suppliers in a couple of years or haven’t swapped at all, you’ll be on a basic variable rate baseline tariff, which is likely to be more costly than many of the fixed-rate tariffs offered. However, when swapping to a new provider, a variable tariff should not be ruled out entirely; some competitive variable rate tariffs are available. Some people do not want to be tied down to a contract for an extended length of time. So what are the main differences between the two?

Fixed tariff

Fixed tariff plans are a type of electricity plan in which the rates stay the same throughout the term. A fixed tariff plan’s rates are usually lower than other plans, but they come with shorter terms and higher upfront costs. Fixed tariffs can help customers save money on their utility bills because they do not have to worry about rate increases and changes in price. These plans help customers avoid paying high fees during peak hours when demand is highest and during off-peak hours when demand is low. Despite this, these plans generally have a more extended contract period (typically three years) than most other electricity plan contracts.

Pros

• Rates are usually cheaper: Generally, your rates are competitive compared to other options.
• There is a set rate: The price per kilowatt-hour for both electric and gas will not change during your contract.
• It is easier to plan your budget: Fixed rates make managing your money easier.

Cons

• Potentially higher costs: Fixed tariff rates only make sense if wholesale prices do not drop below them, making standard variable tariffs more economical.
• Exit fees apply: You may have to pay a fee if you leave your tariff early, unlike standard variable tariffs.

Variable Rate tariff

A variable-rate tariff electricity plan is a type of electricity plan that fluctuates with the market price of power. It is usually more expensive during peak demand periods and cheaper at other times. Variable tariff electricity plans are becoming popular among residential and commercial customers. These plans let you choose how much electricity you want to use throughout the day, but with a hidden cost for using more.

Pros

• An open-ended contract: If you want to switch providers at any time, you are not obligated to stick with the tariff for a specific period.
• Exit fees are not charged: Exit fees will not apply if you decide to switch providers.
• Lower prices possible: If wholesale market conditions are favourable, you might end up saving some money on a fixed rate tariff.

Cons

• Prices can fluctuate wildly: Your rate may increase based on wholesale prices.
• Budgeting is challenging: Not knowing how prices will change makes it hard to plan.

Should you choose a Fixed Rate or Variable Rate electricity plan?

There’s no correct answer to this question. It all depends on your needs and wants. Variable-rate electricity plans are flexible and allow you to pay a lower monthly bill, while fixed-rate plans offer stability. You should always do some research before switching plans. The best way is to use a price comparison site to help you see what you could save. According to the price comparison site electricitymonster.com.au comparing plans can make a lot of sense. In general, fixed-rate electricity plans have a contract you agree to for a certain number of years. You will pay the same amount for electricity regardless of what it costs to produce it during that period. This can be good if you are not going to need any more electricity in the future. Variable-rate electricity plans lock in lower prices during high-demand times and increase costs during low-demand times. These plans allow you to save money when demand is low and make up for it when demand is high.

Fixed and variable electricity rate plans have their benefits and drawbacks. You can save money on your electricity bill by shopping around for electricity quotes and choosing the right option for your circumstances.

Related posts:

Top reasons to remortgage your house 7 Reasons why you should pre-plan your own funeral How to plan and budget for major home repairs The different types of Life Insurance and how to choose the ideal one for you