Martin Lewis: Energy bill credit – how much is too much? Stop the rip-off and get back £100s, by understanding the monthly direct debit energy cycle…

We're meant to spend part of the year in energy credit, part in debit – and the key is to know where you should be at, when!

1. Direct Debit is the cheapest way to pay, so don't ditch it unnecessarily. Plus when the switching market is open, there tends to be far more direct debit deals and options than other payment methods.

Still, I know some hate monthly Direct Debit. If you're ditching it, you need to understand 'payment in receipt of bills', which most go to, costs 7% more (from 1 April 2024, it'll cost on average 6% more). Far better would be to check if your supplier offers variable direct debit, where unlike monthly Direct Debit, what you pay each month isn't set, it's simply based on your usage – and this is still at the same cheap Direct Debit price. Just budget for big winter bills.

Or if you're willing to top up when needed, prepayment meters, which from July 2023 will, at least on the price cap, be at the same price as direct debit (from 1 April 2024, prepay will be around 3% cheaper than Direct Debit). 

2. Ensure your Direct Debit is set fairly. As prices have moved (gone up) a lot, so have Direct Debits, and some are heavily out of kilter with use. And all has changed again since the removal of the £66/month energy support payment. To check that, see our Is my Direct Debit fair? guide, including the Direct Debit Calculator, where you can plug your figures in to see what's about right.

Clearly, we use less energy in summer than in winter. Yet below is internal data Octopus Energy kindly gave me pre-energy crisis (though the cycle won't have changed much). What's fascinating when you look at this data is the time lag.

The pattern is what counts, but just for clarity, this is the pattern for someone with a £200 a month dual-fuel Direct Debit, with a zero balance on 1 January.

• Early May is the baseline for when you should have minimum credit. While the midpoint of winter weather is around the end of January, it takes until May for your energy debt to stop increasing. So early May is when you should have the minimum credit. In this scenario, you'd have nearly two months' worth of debt.
  
  So if you're substantially in credit in early May, then that is too much.
  
  
• Early November is the time you should have maximum credit. It's after summer's peak, in late August, by the time you're actually in credit, with that maxing out in November. So you would want that buffer zone of a month or two's worth of credit then.

For someone who started with the firm in May

For someone who started with the firm in November

Are you in too much energy credit?

Always first check your meter readings are up to date. Then look at whether you're in energy credit or debt and compare it to the first graph.

The perfect time to do this is in May, when a normal situation would be to have little energy credit or be a month or so in energy debt – so if you've a lot of credit then, it's too much.

Alternatively look in November, when you'd expect to be at most two and a half months in energy credit. If you've far more, it's likely too much (though it does depend on how prices are moving).

- Too much credit? Get your cash back. Condition 27 of energy suppliers' licences is that they must take reasonable steps to ensure direct debit levels are fair, and to explain the level they're set at. So call up and ask – there may be a justifiable reason. 

(It's worth noting that firms set Direct Debits based on current prices, not future, so right now when we know prices are likely to drop in July, that's not factored in, but will mean you likely need even less credit.)

If not, the rules state that if too much credit has accumulated and a customer asks for it back, suppliers must refund it – or clearly explain why not. If they don't, then you can make a complaint via Resolver, which will auto-escalate problems to the Energy Ombudsman if it's not sorted.

Some firms do promise automatic refunds if your credit's too high on the anniversary of you joining, but others require you to check.