Standard Variable Rate vs. Fixed Rate Energy Rates: What’s the Difference?

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  • Standard variable and flat rate energy rates are a hot topic these days, with many vendors removing flat rate rates from the market. energy crisisCustomers subject to standard variable tariffs energy price cap.

    In the past, the solution to rising energy bills might have been to look around and switch to a cheaper flat rate. But the world of energy looks very different now. Standard variable rate tariffs, which traditionally cost more, are on average over 50% cheaper than current highest value fixed rate deals.

    Sarah Coles, Senior Personal Financial Analyst Hargreaves Lancedown, ‘During the cap period most of the time, energy companies have only limited how much they can charge people at their most expensive rates, so they could switch to a better deal and save hundreds of pounds. But as prices have skyrocketed in the last six months and the market has changed dramatically, no deal is cheaper than the cap at this time.’

    What is the difference between Fixed Rate Tariff and SVT?

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    Energy bills are simply how a company charges customers for the gas and electricity they use.

    You can get a single fuel rate paying for gas and electricity separately, or a dual fuel rate paying together.

    Current products delivered via pipe and wire are exactly the same no matter which tariff or supplier you choose.

    There are two main types of energy bills.

    fixed rate tariff

    With this rate plan, the cost per unit of energy used is fixed for the duration of the contract (typically 12 to 18 months). If the wholesale cost of energy goes up or down, it doesn’t affect what you pay. This makes budgeting easier, but you miss out on saving opportunities when market prices drop. In general, you can convert trades up to 49 days before contract termination, with no early termination penalty.

    Fixed rate deals tended to be cheaper than standard floating alternatives and served as a competitive method for new businesses.

    However, due to spiral energy costs, you cannot find cheap flat rate deals at this time.

    Standard Variable Rate Tariff (SVT)

    If you do nothing when the flat rate plan ends, the provider will automatically apply the standard variable rate plan. It is called ‘floating’ because the amount you pay per unit of energy can fluctuate from month to month depending on the wholesale energy price.

    Suppliers can only charge up to the current energy price cap. Unlike flat rate transactions, you can leave SVT at any time without penalty.

    How do I know which rates apply?

    According to comparison website Comparethemarket.com, 20% of energy customers aren’t sure what rates they’re charging. More than half of those who do flat rate deals don’t know when their contracts will end.

    If you haven’t changed your energy supplier in the last few years or never, you’ll be on a standard variable rate plan.

    You can easily check your billing information online or by calling the supplier directly.

    Which one should I choose?

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    If you’re on a flat rate deal, even if your energy limit goes up in April, you’ll still have to pay the same amount each month unless your provider goes bankrupt.

    Once again, if your contract has ended or has been terminated and you are currently at the SVT of the supplier, it is best to do nothing. The cheapest modifications currently available cost an average of 56% more than the energy price cap.

    Coles adds: ‘If you haven’t already switched to direct debit payments, we recommend that you do so. That’s an additional £130 per year for those paying by cash or check.’

    There’s nothing wrong with looking around and figuring out if it’s worth moving, but once your flat rate contract is over, you’ll be moved to a price cap-protected SVT. Another benefit is that you are not tied to that trade, so you are free to move when the price eventually declines.

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