Are these fixed-rate deals a bright idea?

To fix or not to fix, that is the question. As consumers reel from the latest round of energy bill increases, suppliers are encouraging us to sign up to fixed-rate deals. But with fixed tariffs priced at about 20 per cent more than online tariffs, is fixing the best way forward?

Last month npower and ScottishPower became the last of the big six energy suppliers to raise prices this summer - meaning that households are now facing average annual bills of almost £1,500, a rise of about 40 per cent since last year. Energy companies blame the latest rises on “massive increases in wholesale costs”.

Customers are now being encouraged to fix their prices for the next 12 months, or more, to safeguard against further price rises. British Gas is widely promoting its fixed-price tariff, which fixes your bills until 2011. ScottishPower, EDF Energy and E.ON are offering deals fixed until late next year. While these tariffs will provide consumers with greater peace of mind, you will pay a premium to be on such deals.

For example, Moneysupermarket.com, the comparison website, says that the most competitive British Gas tariff, the online deal Click Energy 5, costs an average of £845 a year, but its fixed-rate tariff would cost the same user £1,240 a year - a hefty £395 more. ScottishPower's online tariff costs £1,141 a year, but the same user would pay £1,213 on a fixed deal - £72 more.

Ann Robinson, of uSwitch.com, another comparison website, says: “It is a difficult one to weigh up. People should be cautious about fixing now, as this round of price rises has finished and prices are unlikely to rise again until February or March. If your fixed deal expires next year, you could benefit from a lower rate for only a few months.”

It is also worth noting that fixed tariffs come with a termination fee of between £50 and £100 if you want to quit the deal early. This does not apply if you are moving house, as you should be able to transfer the tariff to your new address.

“But consumers who are looking for the cheapest deal now should opt for the best online tariff. Not only will this be cheaper than fixed tariffs, it means that you can continue to shop around for the best deal and not be tied in to a long-term contract. With online deals, you input all the meter readings yourself, which means that you should receive more accurate bills and not be overcharged.”
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