If you have been shopping around for a new energy plan for any length of time, you have probably come to find out that most energy providers offer some type of fixed-rate or variable-rate energy plan. However, you might not really know the key differences between them and how they could affect you financially and affect your energy usage.
First, let us explain what each of these energy plans is.
Fixed-Rate and Variable-Rate Energy Plans
A fixed-rate energy plan is an energy plan whereby the price you pay for your energy is set at a fixed rate for a certain period of time. When you sign up, you are locked into that rate until the specified end date of your contract. The length of these plans can vary by company, but they generally last between 6 to 36 months.
On the other hand, if you choose a variable-rate plan, you will pay an amount that is set by the market and may vary every month. These rates can fluctuate dramatically from month to month; however, typically, your actual monthly price will be lower than what it would be on a fixed-rate plan. It also means that the rate you pay could go up as well as down.
Pros and Cons
Fixed-Rate Plan Pros
Typically, your monthly payments will be lower on a fixed-rate plan than what they would be on a variable-rate plan; therefore, these plans may work best for those people who want to save money on their energy bills by lowering their electricity rates.
Additionally, if you are someone who uses a lot of energy or are concerned about the price of energy increases over time, then a fixed-rate plan could be right for you. Because these plans ensure that you pay a certain amount per kWh until the end of your contract term, it means that they will not go up in price during the period you have signed up for.
Variable-Rate Plan Cons
The main disadvantage of a variable rate plan is that you never really know what your energy bill will look like a month to month because the price fluctuates, which could make budgeting difficult. Additionally, if prices rise significantly during the time you are on this plan, you will have to pay a higher price. If rates go down, then you might not take advantage of them because you are locked into your current rate until your contract expires.
It also means that if energy prices rise rapidly, your bill will reflect this increase unless you change plans or providers before it is too late.
Variable-Rate Plan Pros
If prices fall rapidly, you will continue to benefit from them throughout your contract term. If you are someone who is concerned about energy prices increasing over time or want to save money on your energy bill but do not like the idea of signing up for a fixed-rate plan, then a variable-rate plan could be right for you.
What Plan is Right for You?
When it comes to choosing the best energy plan, some people may not know which one is actually better. However, before making your decision, you should consider all of the pros and cons for each type of plan to determine what will work best for your current situation. If you are someone who does not like the idea of being locked into a contract for several months, then you may want to go with a variable rate plan. On the other hand, if you are someone who wants to save money on your bill and are not worried about fluctuations throughout the course of your contract term, then a fixed-rate plan could be right for you.
There are also other factors to consider, such as the length of your contract and whether or not you can switch plans at any time. If you want a longer contract term and cannot switch plans easily, then a fixed-rate plan may be best for you. On the other hand, if you do not mind shorter contracts and easily being able to switch to a new plan, then maybe a variable-rate plan would be the better choice.
In conclusion, before you make your decision it is important to consider all of the pros and cons for each type of energy plan so that you can determine what will work best for your current situation. For example, if you are someone who uses a lot of energy or is concerned about the price of energy increasing, then a fixed-rate plan may be right for you. On the other hand, if you are someone who does not like being locked in your contract term and want to save money on your bill, then maybe a variable rate plan would be the better choice.