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How switching energy provider could save you hundreds

With wage inflation still low and many families continuing to feel the pressure financially, cutting costs is uppermost in many householders’ minds in order to free up their disposable income. One key issue that keeps recurring in the media in particular is that of the cost of domestic energy, with the so-called ‘Big Six’ energy companies coming in for repeated criticism for their charges which are often perceived to be excessive, with profits at the core of their ethos.


Deregulation of the energy market, however, has opened the doors for a host of smaller, less well-known companies to gain a foothold in supplying electricity and gas to domestic consumers, who are now able to obtain online quotes for their fuel, enabling them to make comparisons between the annual prices the different suppliers are likely to charge.

 

Due to the falling wholesale price of energy, as well as increased competition in the energy market, genuine savings can be made if consumers are prepared to shop around for the most competitive deals.

 

Data compiled by uSwitch.com, the internet comparison company, reveals that switching energy tariffs saves £228 on average a year, an increase of £90 compared to May 2012. For some customers the rewards are even more lucrative, with annual savings of up to £400 possible. While millions of customers continue to retain their existing tariffs instead of seeking cheaper deals, just under half of those who do switch are moving to smaller companies, away from the ‘Big Six’ providers.

 

 

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Is it worth switching to a smaller supplier?
Not only do the ‘Big Six’ energy companies make up 90% of the energy market, they are also consistently more expensive that their smaller counterparts, as well as achieving lower customer satisfaction ratings. On average, the annual standard tariff for one of these suppliers is £1,265, an increase of over 250% in a decade. By comparison, some of the newer, small energy companies have brought the annual cost of fuel to under £1,000, saving customers considerably.

 

Of the top ten cheapest energy deals currently available, nine are provided by smaller suppliers such as GB Energy Supply (with an average annual bill of £870), Extra Energy (£889 per year) and First:Utility (£890 per year). Exact costs will be determined by consumption, location and payment method, but the message is clear: the ‘Big Six’ energy companies are rarely more cost-effective than the smaller suppliers.

 

To fix or not to fix…

 

Energy deals can be purchased as fixed and standard options. Fixed deals operate in a similar way to a fixed rate mortgage: you can expect to pay slightly more than the cheapest available rate, but you have the reassurance that, for the term of the agreement, the unit price of fuel won’t change. This doesn’t mean your monthly bill will necessarily remain the same as a sudden increase in consumption will mean you need to pay more to cover the cost. The actual cost of each unit of electricity or gas, however, will remain the same. Fixed deals tend to last for between 12 and 48 months.

 

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A fixed deal doesn’t mean you are necessarily tied in for the entire length of the agreement, but you may have to pay a cancellation or ‘exit’ fee if you do decide to move elsewhere.

 

Standard deals are subject to changes in unit price so, if the energy company cuts prices, you will obtain cheaper fuel. If prices are hiked, however, you can expect your bill to increase.

 

Fixed deals may not be the cheapest option, but they are preferred by customers who would rather have an idea of how much their monthly payments will be, especially if their household budget doesn’t have much room for manoeuvre.

 

Does it cost to switch energy supplier?

 

While there are usually no fees associated with switching between suppliers, customers may have a brief overlap in bills, especially if the old account leaves an unpaid surplus (easily achieved if you’ve unwittingly used more energy than expected due to cold weather). If paying off the old account and commencing monthly payment to your new supplier is problematic due to constraints in your finance, a short term loan could be the simple solution to covering the debt. However, in the same way you would shop around to find the most competitive energy supplier, you should always obtain a variety of quotes from lenders to ensure you get the most affordable loan available.

 

Switching energy suppliers is just one way to cut your household expenses and more customers could benefit from the quick and easy process that is involved, potentially saving hundreds of pounds a year.


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