Energy prices will fall in July - is now a good time to take a fixed tariff?
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- Energy bills will soon dip, but are then expected to rise later in the year
- Taking out a fixed deal could help households beat the coming price hikes
- How to save money on energy: What you need to know and tips that work
Energy prices will fall 7 per cent for millions of homes from today, but are due to rise again from October - so is now a good time to fix your tariff?
The average home paying by direct debit will see yearly gas and electricity bills drop from £1,690 to £1,568 today, a fall of £122 - though exactly how much your bills will go up depends on how much energy you use.
That is due to Ofgem cutting the rate of its price cap, which sets the standing charges and unit rates paid by households on variable-rate energy tariffs.
Most households have been on these deals since prices spiked in 2022, but fixed-rate tariffs are now starting to return, allowing them to lock in their energy costs for one or two years.
Analysts at Cornwall Insight think the typical energy bill will rise to £1,636.44 in October and edge up slightly again to £1,634.20 in January 2025.
But if the price cap goes down substantially after that, there is a risk those who choose a fixed-rate deal today could end up overpaying.
So what fixed-rate deals are around and are they worth considering?
Should you take a fixed energy tariff?
No-one can say with 100 per cent certainty whether energy prices will rise, fall or stay the same.
So taking out a fixed-rate deal means taking a gamble on the future direction of these bills.
However, Cornwall Insight has a good track record of accurately predicting the direction of energy bills, and has been very reliable.
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On that basis, fixing into a cheaper rate from today seems like a good way to make a small saving on energy during 2024.
However, the issue is that there are very few cheap fixed energy deals around.
A Cornwall Insight spokesman said there were just 31 fixed rate deals on the open market as of 27 June.
However, there are plenty of secret fixed-rate energy deals that are only offered by energy firms to their existing customers.
These can be cheaper than the price cap, though in practice most hover just below it.
The only way to know if a fixed-rate deal is good value for you is to work out how much you pay for energy now, and compare that with any fix being offered.
Ben Gallizzi, energy expert at Uswitch, said: 'The long-term outlook still remains very uncertain and it is expected that prices will remain at a similar level in the first quarter of next year.
'Households should therefore avoid being lulled into a false sense of security from falling energy bills this summer, as the reprieve will be relatively short-lived.
'It’s important to prepare now for future price rises and consider locking in rates while there are competitive deals to choose from.'
How do I know if a fix will save me money on energy?
To work out if an energy deal - fixed or otherwise - is cheaper than you are paying now, compare the unit rate and standing charge with what you currently pay.
The average home is paying rates limited by the Ofgem price cap.
From 1 July that means paying 60.12p a day in electricity standing charges and 31.41p for gas, while electricity unit rates will be 22.36p per kilowatt-hour (kWh) and 5.48p/kWh for gas.
The massive variable is what happens with the Ofgem price cap in the future. It might be possible to lock into a cheaper deal now, only to see the price cap fall significantly, leaving you overpaying.
Beware energy bill exit fees
Another disadvantage of fixed-rate energy deals is they often come with high exit fees, unlike variable-rate deals.
Exit fees are paid when leaving a fixed-rate energy deal before the end of the term, usually 12 months.
Researchers found that exit fees increased by 345 per cent from an average of £42.06 in early 2021 to a peak of £187.21 in April 2024.
This can present a problem for anyone taking out a fixed rate now.
Most fixes are 12 to 24 months long, and it is impossible to predict what energy prices will do over that time.
It could be possible to lock into a fix now and save money, only to be locked in if energy prices rise in 2025.
If that happens, anyone on a fix would need to work out whether it is cheaper to stay put, or pay the exit fees and swap to a lower-priced deal.
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