Fixed vs. Variable Rate Energy Plans, What Should you Choose?
Choosing the perfect energy plan for your household is an important aspect of your personal finance and can largely affect how much you can end up paying for your electricity and gas bills. Fortunately, energy plans only come in two types – variable rate and fixed rate.
Choosing between the two of them can be quite difficult as each of them has its own advantages and disadvantages. That’s why in this article we will help you choose the perfect energy plan for your household so that you can make an informed decision down the line.
Let’s find out what these energy plans are, how they work, and what benefits each of them has.
What is a Variable-Rate Energy Plan?
A variable-rate energy plan is an electricity or gas plan that changes its price for every kWh or every therm of gas that you consume according to the energy market’s prices. Essentially, you will be paying different amounts of bills each month as the prices in the energy market change.
In a variable-rate energy plan, if the price of wholesale energy is low on the market, you will be charged a lesser amount of money for your electricity or gas consumption. However, in case the prices for energy go up in the market, you will be paying higher amounts of money for the same energy consumption than before.
Benefits of Variable-Rate Plan
The biggest advantage of a variable-rate energy plan is that you are not bound to a fixed and compulsory contract like fixed-rate energy plans are. Unlike fixed-rate energy plans, you will be paying an amount that exactly reflects current market prices which is fair for many people. If the wholesale energy rate goes down in the market, homeowners can enjoy a cheaper electricity or gas bill.
Drawbacks of Variable-Rate Plan
The disadvantage of the variable-rate energy plan is that there is a lot of uncertainty involved with it. If you are on a budget, this means that you constantly need to check the prices of energy in the market and change your plans accordingly from time to time.
What is a Fixed-Rate Energy Plan?
A fixed-rate energy plan, unlike a variable-rate energy plan, is an electricity or gas plan that keeps the same amount of price for the kWh and therms you consume throughout the duration of the contract.
The amount of bills you pay for the fixed-rate energy plans depends on the price of wholesale energy when you first buy the contract which usually lasts much longer than variable-rate plans ranging from 3 months to 2 years.
Benefits of Fixed-Rate Energy Plan
There are several advantages to having a fixed-rate energy plan and the first amongst them is that they are extremely reliable and stable. You don’t need to check your bills again and again during the duration of your contract as they have the same rate of energy as the moment you started the contract. You don’t have to worry if the wholesale energy’s price on the market increases over time.
Drawbacks of Fixed-Rate Energy Plan
While a major advantage on one side, the fixed rate of the plan is also a disadvantage at some times. If you sign up for an energy plan when the market price for energy is high, you will have to incur expensive bills throughout the duration of your contract. If you decide to end the agreement prematurely before it actually ends, you will need to pay a hefty fee.
Choosing Between Variable-Rate and Fixed-Rate
Whether a variable rate or a fixed rate energy plan suits you, it depends entirely on you and the consumption needs of your household. We would personally recommend that households who are on a budget and don’t want to compare prices between the plans, again and again, should opt for a fixed-rate energy plan.
Conversely, a variable-rate energy plan is much more preferable if you want to save more money and are willing to compare prices from both plans from time to time. It also helps that variable-rate energy plans are not bound by long contracts and you can make a shift from them to fixed-rate plans anytime you want.
FAQs
Is Variable or Fixed Electricity Better?
Both variable-rate and fixed-rate electricity can be extremely beneficial for you depending on the flow of the energy market. It all depends on when you sign up for the contract term and how much the price of wholesale energy fluctuates.
What is the Difference Between a Variable-Rate and a Fixed-Rate for Electricity?
A variable-rate electricity bill changes according to the market’s prices and a fixed rate’s electricity bill stays the same from the moment you sign it. Essentially, you pay the same amount as you first signed up for the fixed-rate contract and a total sum of all the market changes in the variable rate contract.
What is a Variable Electric Plan?
A variable-rate electricity plan is an electricity bill plan that will charge your kWh consumption according to the current prices of the market. Your bill directly depends on the flow of the energy market in the past month.
What is the Best Type of Electricity Plan?
There is no universal “best” type of electricity plan as each household has different energy requirements, budgeting needs, and energy prices depending on the electricity provider. It is necessary that you evaluate the advantages and disadvantages of both the variable-rate electricity plans as well as the fixed-rate electricity plans and find the best one for your household.
Final Word
The decision of choosing the best energy plan for your household depends entirely on you and we hope this article helps you make an informed decision. If it does, please consider following our website for regular updates as it will help us out immensely.
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