Variable vs. Fixed-Rate Energy Plans: Which Should You Choose?
Before choosing an energy plan, it’s important to know what your options are. Your electricity provider may offer both variable-rate plans and fixed-rate plans. But how do these energy plans work? And which one can better help you save on your electricity bill? Determining the better choice for you starts with understanding variable vs. fixed energy plans and the benefits they offer.
What is a fixed-rate energy plan?
With a fixed-rate energy plan, the price you pay per kilowatt-hour (kWh) stays the same throughout your contract. So even if market prices change, your energy rate won’t be affected. A set price makes it easier for you to plan for how much you’ll be spending on energy each month.
Even so, a fixed-rate plan doesn’t guarantee that your electric bill will always be the same. The rate is still applied per kilowatt-hour. So, your monthly bill will depend on how much energy you use, as well as any additional fees from the utility. To get an idea of the average fixed supply electricity rate that you’ll pay, view averages for the state you live in.
The benefits of choosing a fixed-rate energy plan
When comparing fixed-rate vs. variable-rate energy plans, look at the benefits each plan can offer. For example, a fixed-rate plan has many benefits that could help keep your energy costs in check, such as:
- A fixed per-kilowatt-hour rate that won’t go up even if market prices rise above your rate
- The ability to budget around your electricity costs
- A more consistent and predictable monthly bill
The disadvantages of a fixed-rate energy plan
You should also consider the disadvantages of each plan when analyzing fixed-rate vs. variable-rate electricity plans. The disadvantages of fixed-rate energy plans include:
- A per-kilowatt-hour rate that will remain the same even if market prices drop below your rate
- Possible early-cancellation fees if you decide to change plans before your contract ends
What is a variable-rate energy plan?
With a variable-rate plan, the price you pay per kilowatt-hour for electricity may be determined by the market or other factors considered by the retail energy supplier. Since the market cost of electricity changes frequently, your rates could too. This can be a good thing when market prices drop. But when factors like high temperatures or increased demand raise energy prices, a variable-rate plan could get costly.
Variable-rate energy plans can also be complicated. Some may even start at a lower fixed rate for a month or two and then jump to a higher variable rate. That’s why it’s important to carefully read through the details before deciding on any energy plan.
The benefits of choosing a variable-rate energy plan
It’s easier to choose the right energy plan when you understand how variable vs. fixed energy plans benefit customers. With a variable-rate plan, you’ll be able to enjoy benefits such as:
- Increased savings on your electricity bill when market prices are low
- Greater flexibility to switch energy providers
The disadvantages of a variable-rate energy plan
Variable-rate plans do offer some perks. But you’ll also notice some downsides when comparing variable electricity and variable gas rates vs. fixed rates. Some of the biggest disadvantages of a variable-rate energy plan include:
- Changing rates that increase when market prices are driven up
- Paying more per kilowatt-hour when the cost of natural gas and other fuels rise
- Unexpected spikes in your monthly bill that make it hard to predict and budget your expenses