‘I’m not fixing because there’ll be a huge rise when it ends’

'I'm not fixing because there'll be a huge rise when it ends'

This is false, but very common logic. Even as I came off air at Daybreak this week, the lovely Gwen (who sorts out making sure all the mics are correct) told me she couldn’t persuade her mum to save money and lock in on a fix because of this. 

I’ll be honest. I’m befuddled by how common this is. Today, I got a tweet from @malcmorton, saying: "Even if I fix my energy prices, won’t I have one hell of a jolt when the deal expires?"

So I want to explain why avoiding fixing due to this is a false logic. I hope in return, those who fear it will tell me if it allays their worry, or if I’m missing the point.

It’s fixing season

When prices are moving (we’ve now had four of the big six announce price hikes; the others will follow within the next few months – EDF’s "we won’t hike this year" promise is likely just a short delay), doing a normal comparison is problematic, as you move out of the frying pan and into the fire.

Instead, the key is to compare and see if you can grab the cheapest fix possible. The aim’s to pay less than you are now and lock in at the lowest price. (See Cheap Energy for full info and Cheap Energy Club’s Top Fixes Comparison to go for it.)

Many, especially those on standard tariffs at current prices, will typically pay up to £200/year less on the cheapest fixes – never mind after any price hike. If you have to pay a lot more than post-hike prices to fix, then I would think very carefully before fixing.

Better still, if you pick a deal without exit penalties – then if the situation does change (see my Will the PM lower energy bills? blog), you’re free to move elsewhere.

The rate shock worry

I believe the problem some are having with this is that once the cheap rate ends, you’ll be slammed by an almighty cost hike – and this "rate shock" in a year or three’s time when the fix ends could mean mammoth and unaffordable bills.

Yet this negates the fact that actually you save during the fix, and after the fix ends, you’re just moving back to standard prices (in fact, energy firms are being mandated to move you to their cheapest standard deals when the fix ends), so are no worse off. If there are cheaper tariffs then, you can just switch again.

To help, I’ve done a very rough illustrative table below (it’s to explain the point – please don’t see it as a prediction) of the price moves for someone on a standard tariff fixing to the CHEAPEST possible fix right now.

Now, looking at this illustration, there are a few things it clearly shows.

• There will be a rate shock. When the fix ends, most people will be moved onto a standard tariff based on whatever the current prices are at the time. So, at that point, it’s likely there will be a big hike in what you pay.
• You will be paying that same rate anyway. While it’s a pay jump, you’re unlikely to be paying more than if you didn’t switch. It only seems like a big price rise because you’ve saved in the meantime. Plus, when your fix ends, you should be comparing tariffs again to find a new cheap one, which may be able to mitigate some of that shock.
• You will make massive savings meanwhile. Standard tariffs are rising substantially from November with four big companies, and the rest are likely to follow.  Many on standard tariffs moving to a cheap fix will see their bills fall. The savings over 18 months on a short fix could easily be £400 (or, obviously, more if prices rise again – or less if they fall).

While I understand the psychological worry of the rate shock, to be willing to sacrifice saving in the short term because of it, is poor financial logic.

Perhaps one solution to help smooth the worries is to put aside some cash from the short-term saving (say, £150 a year in the above example) for the following two years to cover the rate jump.