What is a fixed-rate tariff?

by | Jul 9, 2024 | Bills, Electricity & Gas

UK residents have a choice of two types of energy tariffs in their homes – a standard variable tariff or a fixed rate tariff. Choosing the right option for your home will have a big impact on how much you pay for your gas and electricity.

To make things easier, we’ve broken down everything you need to know about fixed-rate tariffs in the article below. We’ve done the same for variable tariffs, which you can read here.

Still not sure which tariff is right for you? Book a free call with one of our Connections Experts and they’ll be able to take you through your energy switch from start to finish and get you set up with the perfect tariff for you.


What is an energy tariff?

An energy tariff is an agreement between yourself and your energy provider for how much you’ll pay for the energy you use.

Your tariff is made up of two parts – the per-unit cost and the daily standing charge. You’ll pay the per-unit cost for each kilowatt-hour (kWh) of energy you use, and the standing charge for every day you are connected. You’ll have a different tariff for each fuel type you use – electricity and, if you have a connection, gas.

Some energy tariffs stay at the same price for a pre-agreed length. These are called fixed tariffs. Others are adjusted throughout the year. These are variable energy tariffs.


What is a fixed-rate tariff?

A fixed-rate tariff is an agreement with your energy supplier to buy energy at them for a consistent price for a certain length of time, usually 12 months. In exchange for keeping your price the same, you agree to remain with the supplier for the length of the contract, usually facing an exit fee if you choose to switch suppliers. However, these exit fees don’t apply if you’re moving home.

During the UK energy crisis, suppliers stopped offering fixed-rate tariffs as prices became too unpredictable to guarantee rates. However, as prices have stabilised over the past year these tariffs have begun to reappear on the market. This also means energy suppliers are competing against each other to offer better prices, instead of every provider offering the same, price-cap-based rates.


Is a fixed-rate tariff better than a standard variable tariff?

As energy experts, we currently recommend choosing a fixed-rate tariff for a few reasons. During the UK energy crisis, energy prices shot up and standard variable tariffs were the best value – and often only – option available. Since then, energy prices have stabilised and energy companies have begun offering competitive fixed-rate tariffs.

Many of these tariffs are very close to the current price cap, and with prices predicted to rise in October, they will soon be even better value. Meanwhile, customers who are on standard variable tariffs will see their prices rise when the price cap does.

We’ve seen energy prices rise steadily over the last five years, even outside of the energy crisis. Industry analysts expect this trend to continue throughout the 2020s.

A chart showing how the energy price cap and standard variable tariff have changed over the last five years. Prices have increased steadily, with dramatic jumps in 2022 and a fall at the start of 2023.

How the energy price cap, which determines the price of a standard variable tariff, has changed over time.

Not only does a fixed-rate tariff protect you from sudden price jumps, but you also have the bonus of knowing approximately how much your energy bills will be for the year and being able to budget accordingly.


What’s the default tariff in the UK?

When you move into a new house you are automatically placed on a standard variable tariff. This is why they are sometimes called default tariffs.

Suppliers do this so they can begin charging you immediately at market rates. When wholesale energy costs increase, so do customer prices.

If you have not chosen a new energy tariff since moving into a new home, or if your current tariff is more than 12 months old, you are almost certainly on a standard variable tariff. If that’s the case, you could save over the next year by switching to a fixed-rate tariff.

Looking for a great value fixed-rate tariff? We recommend Octopus Energy, the UK’s top-rated supplier for customer service and Which? Magazine’s recommended provider for 7 years running. Find out more and switch in just a few minutes here. 


Read more about energy in the UK:

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