When are you better off choosing a flat-rate over a discounted energy plan?
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Have you ever signed on to a discount that sounded incredible, only to find that it didn’t really make much of a difference when your bill came in? Or that when you’re a little bit late with the payment, you’re hit with a big late-payment fee?
You’re not alone. We hear stories like this from our customers all the time.
To help you spot the deals from the duds, we’ve put together this breakdown of what to look for when you’re comparing discounted and flat-rate plans.
What’s the (real) rate?
In a discounted plan, the discount you see advertised will typically be calculated against an energy provider’s market rate. However, the name “market rate” can be misleading, because every energy provider sets their own market rate.
This means that you shouldn’t choose an energy plan, purely on the discount, because the price you end up paying is not directly connected to the percentage you see.
You should pay close attention to what the rate is after the discount has been applied, and use this number when comparing it against a flat-rate.
Once the Default Market Offer (DMO) is introduced, all discounts will be calculated against this rate to help avoid confusion, but you should still always double-check the rate before you sign up.
Discounted rates: A (made-up) example
A 19% discount on a market rate of 30c/kWh would be 24.3c/kWh.
A 40% discount on a market rate of 42c/kWh would be 25.2c/kWh.
Against both cases, a flat-rate of 24c/kWh would be cheaper.
Your daily supply charge
After the rate you pay per kilowatt hour, this often overlooked charge may actually be the one difference between a deal and a dud.
The amount you pay for electricity in a day is a combination of two things. Your rate per kilowatt hour( /kWh) and your daily supply charge. The daily supply charge is a flat amount you pay each day to have electricity supplied to you, and is not affected by your power usage.
An advertised discount may not give you a discount off the daily supply charge. It depends on the energy provider you’ve chosen, but some will discount this charge, others won’t.
You should pay close attention to this charge because, even if the discounted per kilowatt hour rate (/kWh) is really low if the daily supply charge is particularly expensive, you could still end up paying more.
Our advice is to look at your usage and calculate the rough price for a week, including the daily supply charge, as well as the price per kilowatt hour. It takes a bit of calculation, but this will give you a more accurate number to compare with.
Are you locked in?
In the majority of cases, getting a discount will mean that you need to sign on to a 12 or 24 month contract.
While in most cases you can still leave your provider during this contract, you may have to pay an exit fee.
You should always check if you’re comfortable with the exit fee before you sign up.
If a better offer comes along (as it’s likely to do within a period of 24 months) an excessive exit fee can be greater than the amount you’d save by switching. This can make you feel trapped with a plan you don’t want to be paying for.
Excess fees and charges
As you compare, you’re likely to find that discounted energy plans often come with a couple of catches. There are many examples, but one of the most common is the dreaded late payment fee.
If you find it difficult to be proactive with your bills, you may simply find it easier to stick with flat-rate plan as some of these will not charge a fee for this.
Other common fees are connection and disconnection fees. Certain providers may try to bring customers in with huge discounts and make up for this with excessive fees in this area.
If you don’t like the sound of fees like these, shop around! You’ll find that some providers don’t charge fees for these connections at all, and others will periodically run promotions where they waive these fees.
Most importantly, before you buy, read your contract and understand all of the fees before you sign on. Even if you don’t see yourself paying for them, it’s better to be aware than caught off guard.
Rates can (and will) change
If you’ve read this far, we’ve got a bonus tip for you, and it’s one that applies to both flat-rate and discounted plans.
Take a look at your contract before you sign up. Are the rates variable, or are they fixed?
Variable rates will move with the energy provider’s market offer. This means that they may be cheaper now, but as the market changes, they may become more expensive.
Fixed rates are set at the time when you sign up, and they should remain steady all the way through your contact period. This means that they may be more expensive now, but they could be cheaper over time.
The reverse is also true, depending on how the market goes, they may be cheap now but become more expensive later.
The choice is a bit of a gamble and it’s up to you which you prefer.
Depending on your provider, they may elect to reduce your rate in line with their market offer (if the price of it goes down), even if you’re on a fixed rate. This can reduce the risk of going with a fixed rate offer.
You’ll also want to keep an eye out for any annual fees if you’re on a fixed rate, as they are unlikely to remain fixed.
Keeping it simple
If you’ve stuck with us this far you’re probably thinking exactly what we’re thinking. How does anyone figure this stuff out?
Luckily for you, we’ve got a team of trained experts who make it easy to find a great deal and help people just like you, every day.
Find an energy bargain in your area with our quick and easy comparison service. Best of all, comparing with us is always 100% cost and obligation free.
If you’d like to see what you could be saving, simply click below to get started.
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This article is opinion only and should not be taken as financial advice. Check with a financial professional before making any decisions.