More on energy:
With all of the UK checking their energy bills at the moment for ways to save, you might question if you are actually getting the best deal when you pay by direct debit. The short answer? Yes!
Unless you have been on a long-term fixed tariff since before the energy crisis, the best value electricity and gas right now are standard variable tariffs. Not all standard variable costs are the same, even within the same energy company. How much you pay per unit of energy, the cost of boiling a kettle, for example, varies based on how you pay your bill, with direct debit being the cheapest. Direct debit payment is the term for making a fixed monthly payment directly from your bank account to your supplier, usually each month.
Why is it cheaper to pay by direct debit?
Energy companies encourage paying by direct debit because it saves them on administration and issuing bills. You’re also more likely to pay your bills on time if your payment is automatic. Suppliers also like the fact that direct debits are usually the same year-round. Households use more energy in the winter when there is more need for heating and electric lighting. Energy companies average your usage across the whole year to set their direct debit amount, giving them year-round reliable revenue.
All of these factors mean energy companies reward customers who pay by direct debit with a lower per unit rate. Lower unit rates mean lower bills overall. For more information on how your energy bills are calculated, visit our energy bill guide below.
How much can I save if I pay by direct debit?
Your own saving will depend on your supplier and how much energy you use. We ran the comparison for a typical three-person household in South London with British Gas and found they’d save £130.15 a year by switching from paying on receipt of bills to direct debit.
|Annual total paying on receipt of bill||£1067.07||£1041.08|
|Annual total paying by direct debit||£1001.37||£976.63|
I’ve been told to avoid direct debits. Why?
One of the biggest things you should be aware of when paying by direct debit is that your payment will be based on your previous usage or an estimate of your usage if you have not provided meter readings. If your household has changed, or you’ve made changes to use less energy, your direct debit payment may be too high. Some blogs and columnists are advising people to cancel your direct debit because it might be too high, but it’s much easier to adjust your monthly payment – and you’ll still benefit from the lower rates.
You can use your online account with your supplier to see your current account balance. It’s summer as I’m writing this, so we would expect you to be in credit. You’ll also see what your direct debit payment should be as well based on current usage. Provide an updated meter reading and see if this figure changes, if it does you’ve reduced your usage enough to lower your monthly payment.