When you’re shopping for an energy plan, there are many options to choose from. As you browse through these options, you will come across fixed-rate and variable-rate electricity plans. You might think, how are these electricity plans different, and how do you decide which one works better for you? We’ll show you the difference between these plans and help you get a step closer to making an informed decision for your household.
Understanding fixed-rate electricity plans
A fixed-rate electricity plan is pretty simple to understand—it means that you’ll have to pay a fixed price for power over a set period, usually one or two years. The per kWh rate is determined right at the start of your contract, and it stays the same until it ends.
With a fixed-rate plan, you won't have to worry about paying extra whenever the rates rise; however you may miss out on savings if the rates decrease. On the other hand, knowing that your electricity rate won’t change will help you budget for the entire year. You’ll know how much you'll have to pay every month or quarter, so there won't be any surprises when you receive your energy bill.
Fixed-rate electricity plans provide certainty on the rate you pay but often don't include discounts for timely bill payments, paying via direct debit, or other similar offers. If you’re looking to save some money, it may be better to check if your electricity provider can offer any discounts on a fixed-rate plan.
Every energy provider will offer different rates and terms and conditions for fixed-rate plans, so make sure to read the fine print before you sign onto a plan.
Understanding variable electricity plans
A variable-rate electricity plan means the rate you pay might change anytime during your contract. This rate will depend on the current market prices, so the lower the market price, the lower your rates or vice versa. Variable-rate plans are the standard plan offered by most in NSW, VIC, SA, and QLD energy providers.
With a variable-rate plan, you'll want to keep an eye on the market to see what discounts and concessions are available. Doing a regular analysis of how much you're currently paying and the offers available from other energy retailers will help you know if you’re getting the best deal.
One of the benefits of a variable-rate electricity plan is that if the market price goes down, so will your bill, helping you save money. However, this also means that your bill will also increase if the price per kWh increases dramatically.
Most variable-rate plans don’t ask you to pay exit fees, which can make switching to a new energy provider much easier and more affordable.
Is fixed or variable electricity better?
Now that you have a better idea of each of these two types of electricity plans, it’s time for you to work out:
- Which one will work better for you?
- Are you someone who likes to budget, knowing what your bill will look like?
- Would you be happy paying the same price throughout the year, knowing there might be a chance of rates decreasing?
- Or, would you rather have the flexibility of being able to shop around if rates or your energy needs change?
- Maybe you’re willing to adjust your energy consumption according to market trends and then find the best deals out there?
By taking some time to understand what you’re comfortable with, your energy needs and your financial needs, you'll have a better idea of which plan suits your lifestyle. Remember, there's no one-size-fits-all since no two households are the same. So, it all boils down to your power consumption, budget, need for certainty, and whether you want to take the time and effort to keep up with the changing energy prices in the market. Irrespective of the plan you choose, make sure you compare all your options and understand the contract terms, before you make a final decision.