Time to switch to a fix?
Wondering what to do with your energy, mortgage and savings? Consider getting your finances in a fix
Fix your energy?
With the new price cap due to kick in on October 1, now is the time to review your energy tariff – and to give some serious thought to moving to a fix.
The aim of the price cap, set by regulator Ofgem, was to give some protection to customers who do not regularly switch and who are on standard or default tariffs – typically a provider’s most expensive tariff.
While there is no requirement on suppliers to raise the price of their standard gas and electricity to the highest level possible, we are already seeing some firms confirming they will increase tariffs to the maximum limit for the coming winter. So, if you rely on this cap, you’ll end up overpaying.
For those affected, average energy bills will go up from the current £1,138 to £1,277 from next month. The £139 rise is the largest since the cap was introduced by Ofgem back in 2019.
If you’re on your provider’s standard tariff, you should be able to make greater savings by shopping around and switching to a fix. You could save up to £200* on your bills by comparing tariffs with MoneySuperMarket.
At the same time, moving to a fix will give you the security of knowing how much you’ll be paying for a specific time. You will also be protected from volatile energy markets and future rate rises.
Read more about the price cap here.
*Based on savings made by 30% of consumers that applied to switch via MoneySuperMarket, August 2020 – July 2021, with the estimated annual cost adjusted for the October 2021 Ofgem price cap. GB only.
Things to think about:
If you want to get the very lowest fixes, you need to act fast, as the cheapest tariffs are being removed by suppliers due to a surge in energy market prices
Note that many fixed-rate deals come with exit fees for leaving the plan early. You’ll need to factor this in if, in the future, you find you want to move to a cheaper tariff ahead of the planned end date
Fix your mortgage?
If you’re about to take out a mortgage, you may be tempted to lock into a cheap fixed rate, as deals are at record lows.
Right now, there are now tens of mortgages sub 1% – compared to zero deals at this level this time last year. This indicates an appetite from banks and building societies to lend, and to price low while we’re in a low interest-rate environment.
Locking into a fix gives you the peace of mind of knowing exactly what your monthly mortgage payments will be for a period of two, five – or maybe even 10 – years, making budgeting a lot easier. Fixing also means you will be immune from future rate rises for that time.
Things to think about:
Fixed-rates may be at rock-bottom, but don’t forget to factor in fees. Some of the headline-grabbing rates come with hefty fees (of up to £1,500, and possibly even more). You need to do your sums to consider the overall, true cost of the new deal. In some cases, a deal with a higher rate but lower fees may actually work out cheaper
Note that the very cheapest rates may only be available to those with a hefty deposit or decent amount of equity (in some cases, at least 40%)
If you’re thinking about remortgaging to take advantage of a cheap rate, there is usually a catch in the form of an early repayment charge (ERC). These fees are levied for paying off your home loan before the fixed-term ends. Do the maths to see if making the move makes sense
Act quickly to lock in the lowest fixed-rate deals, as they are not lasting long. To compare deals, head here
Fix your savings?
If you’ve got sufficient money squirreled away in an easy-access emergency fund, and can afford to tie up some of your cash for a period of time, now could be the time to think about a fixed-rate savings bond.
As banks are jostling for top spot, rates have risen, and a gap has opened up between easy-access and fixed-rates. There are currently some great deals for savers, and you may be able to get around 1.5% if you fix for a year, and 1.75% if you fix for two.
With a fixed-rate savings bond, you get the certainty of knowing how much interest your savings will earn you.
The key when thinking about locking money away is to shop around. That will ensure your cash is working as hard as it possibly can.
Things to think about:
While rates may be higher on longer fixes, think carefully about how long to lock in for, as you won’t be able to access your cash in that time. Equally, tie up your money for longer than one or two years, and you could find yourself locked in when better rates become available
Remember that if you need to get your hands on your money early, you’ll often face an interest penalty to close the account early. Some accounts will not permit early closure at all. Read the Ts and Cs carefully before signing up
As there’s no certainty that rates will continue to rise, if you see a great offer, take advantage while you can