Fixed vs Variable Energy Tariffs: Which Saves More?

What Is the Difference Between Fixed and Variable Tariffs?

In 2025, UK households are once again deciding between a fixed tariff and a variable tariff as energy prices stabilise but remain above pre-crisis levels. Each energy tariff affects your energy bills differently depending on your usage and how much electricity or gas you consume at any given time.

A fixed rate tariff locks in your unit rates (the cost per kWh of energy) and standing charge for the length of the contract, usually 12 – 24 months. In contrast, a variable tariff follows Ofgem’s energy price cap, changing every three months in line with wholesale market trends.

For households seeking peace of mind, a fixed deal provides predictable monthly costs. However, a standard variable tariff gives flexibility to switch if market prices fall.

How Much Do Fixed and Variable Tariffs Cost in 2025?

Based on Ofgem’s October – December 2025 cap, the average dual fuel tariff under the price cap costs £1,755 per year, assuming average usage of 2,700 kWh electricity and 11,500 kWh gas (paid by Direct Debit).

Fixed-rate deals currently available from major energy suppliers such as British Gas and Octopus Energy are priced around 7 – 10 % below the cap, with rates near 25.5 p/kWh for electricity and 6.1 p/kWh for gas.

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How Does the Energy Price Cap Affect Variable Tariffs?

The energy regulator, Ofgem, sets the price cap every quarter to limit what suppliers can charge per kWh for customers on default or prepayment tariffs.

For Q4 2025:

• Electricity: 26.35 p/kWh
• Gas: 6.29 p/kWh
• Standing charges: 53.68 p/day (electricity) and 31 p/day (gas)

The cap rose by 2 % in October 2025 from £1,720 to £1,755 per year. Analysts expect another small increase in January 2026 as global gas prices stay high.

This means variable rates will rise in step with wholesale markets, while fixed contracts remain stable for their agreed period.

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What Happens If Energy Prices Rise or Fall?

The break-even point occurs when energy prices move about 8 – 10 % in either direction. Fixing your tariff below today’s price cap becomes advantageous if the market rises — but less so if it drops.

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What Are the Advantages of a Fixed Tariff?

Fixed energy tariffs suit households seeking stability and easier budgeting:

• Rates stay consistent regardless of market fluctuations.
• Good for electric vehicle owners or high-use homes running appliances during peak hours.
• You can plan energy costs across winter when heating demand rises.
• Protects against potential price-cap increases forecast for early 2026.

Pairing a fixed tariff with smart meter monitoring and energy-saving upgrades (like insulation or LED bulbs) compounds long-term savings.

What Are the Benefits of a Variable Tariff?

A variable tariff — usually called a standard variable tariff — offers flexibility to switch or leave at any given time with no exit fee.

• Rates fall automatically when wholesale prices drop.
• No long-term commitment; ideal for renters or short-term residents.
• Beneficial if the energy market experiences sustained price decreases.
• Easier to combine with renewable energy sources like solar panels under the Smart Export Guarantee (SEG) scheme, where you can sell surplus power back to the National Grid.

If you use less electricity overall or monitor your energy use closely, a variable plan may fit your specific needs.

How Do Standing Charges and Unit Rates Differ Between Tariffs?

Both fixed and variable energy plans have two key cost components:

Lowering energy usage through efficiency measures — not just tariff changes — is the most effective way to reduce total cost.

How Long Should You Fix Your Tariff For?

The length of the contract varies between 12 and 24 months. Longer deals may offer slightly higher rates but more protection from future increases.

Before fixing, check:

• Your latest energy bill for current unit rates.
• Whether your current energy supplier charges an exit fee.
• Your postcode, as regional distribution costs affect quotes.

Fixed energy deals shorter than 12 months can work for customers expecting major market changes within the year.

How to Switch and Save on Energy Bills

Switching to a better energy tariff doesn’t have to be complicated. A few simple checks can make a real difference to your annual energy bills and ensure you’re always paying the best possible rate for your energy use.

Step 1: Start by using the energy bill calculator to understand your energy usage across both gas and electricity. This tool analyses how much energy your household consumes and gives you a more accurate quote for the cost based on your current tariff and postcode.

Step 2: Review your recent energy bills or smart meter readings to see how much energy you typically use in a month. Then, compare energy prices from different energy suppliers to find tariffs that fit your habits — whether that means cheaper unit rates, lower standing charges, or plans suited to off-peak use.

Step 3: Once you’ve chosen a suitable energy deal, complete your switch online using your latest energy bill or a smart meter reading. Your new energy supplier will contact your current supplier to handle the changeover. You won’t lose power — the switch happens seamlessly through the national grid, not by changing your physical connection.

Step 4: After switching, register for an online account with your new provider. This lets you track your energy usage, manage Direct Debit payments, and check tariff details easily through their app or web portal. Monitoring your usage in this way helps ensure you continue to get the most from your fixed or variable energy tariff.

By taking these steps once or twice a year, you can stay ahead of price changes, avoid overpaying, and secure long-term savings on your household energy costs.

Factors That Influence Tariff Savings

How Does a Smart Meter Help With Tariff Accuracy?

A smart meter records your energy usage automatically and provides a more accurate quote when comparing tariffs. It eliminates estimated bills, helping both you and your energy company monitor consumption in real time.

Households using smart meters often cut energy use by 5 – 10 % simply through awareness of how much energy they consume.

What About Prepayment Tariffs?

Customers using a prepayment meter pay in advance for energy, often at slightly higher unit rates than Direct Debit customers.

As of October 2025, Ofgem has aligned prepayment tariffs more closely with standard variable rates under the new cap rules. However, standing charges remain slightly higher to cover meter operation costs.

Prepayment users can still switch to a fixed tariff if eligible and may benefit from the same rates as credit customers in 2026.

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Combining Tariff Choice With Renewable Energy

Many energy companies now offer fixed or variable renewable energy tariffs powered by solar or wind generation.

If you have solar panels, the Smart Export Guarantee (SEG) lets you earn payments for the excess electricity you export back to the grid. This works in a similar way to a time-of-use plan: you sell during the day and consume stored energy at night on a cheaper night rate.

For homes producing as much energy as they use, SEG payments can offset a significant portion of annual bills.

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FAQs About Fixed vs Variable Energy Tariffs